Terry Burns has been a life peer since 1998 for his services as a former Chief Economic Adviser and Permanent Secretary at HM Treasury. He has also been President of the National Institute of Economic and Social Research, and of the Society of Business Economists.
This interview was conducted on 6 September 2021.
Q: Could you tell us about your role in growth and regional policy over the past few decades?
I was in the Treasury from January 1980 until the summer of 1998. From 1980 until May 1991, I was Chief Economic Advisor and head of the Government Economic Service. From 1991 until July 1998, I was Permanent Secretary of the Treasury. In both of those roles, growth was a major issue. Maybe this is itself an interesting feature, but regional policy and devolution were not issues that were, in general, at the top of my agenda in those jobs.
Q: What kept those issues off your list of priorities?
The core belief of the government was to concentrate on improving the performance of the economy as a whole. If that could be achieved, then, in a sense, all the boats would rise. That was how it saw the performance of different parts of the economy. The emphasis was certainly on what I would describe as overall growth, for the country, rather than getting into issues about sectors or particular kinds of jobs or regions.
In practice, there were a lot of measures taken that were to do with regions. But I would say that, as a core activity, the Chancellor spent most of his time directed towards macroeconomic growth.
Q: Regional growth has now risen up the national agenda. What do you think is the driver of that change?
I would say it has been the result of experience. We’ve seen many trends in place over time: the success of London (and particularly of the South East) and the extent to which those parts of the country which had been heavily industrialised, continued to suffer as a result of deindustrialisation.
What I observed was a concentration upon macro growth. As time went on, and as the macro side became more successful, the emphasis began to shift towards distribution, and the extent to which parts of the country had struggled more than others. Of course, this followed Big Bang, which gave another great boost to London and Canary Wharf. Although very important from the point of view of the economy, it did begin to shift attention to the question of what could be done about the parts of the country that weren’t performing as well.
Q: What did you expect to happen to the regions during that earlier period, with the emphasis on macroeconomic performance?
This takes us into the issue of the government’s approach. It was concentrating on issues like restoring incentives, of having a better tax system in the personal and corporate sector. There was the privatisation of many of the state-owned utilities, with the aim of getting more competition into those monopoly industries. Also, competitive tendering, removal of foreign exchange controls, financial deregulation…and, of course, reducing the power of trade unions. All these things operated at a national level.
There were two areas where regional issues began to come into play. The first was the emergence of important overseas investment in the UK in the motorcar industry. There was an attempt to encourage investors to come to those parts of the country where either there was declining motor industry or where there were other declining industries. Nissan went to the North East, to County Durham. Others went to the Midlands, Swindon, and South Wales. This inward investment flow became an important part of regional policy.
Then there was the Heseltine-type exercise into how much could be achieved by infrastructure investment to make places more attractive places for investment. The basic idea was to get away from the 1970s approach of trying to have government controlling and directing things. Instead, government was trying to set an environment and an incentive structure that would encourage people to make the longer-term decisions that government wanted them to make.
Q: In retrospect, it seems obvious that that many of these reforms (e.g. the Big Bang) would be primarily to the benefit of London and not necessarily to the rest of the country. Was that even part of anyone’s consideration at that time?
It wasn’t looked at in that way. Government was not looking at this from the point of view of how output was distributed around the economy. They were looking at it from the point of view of where there was an opportunity to encourage growth and something new, then you go for it.
The driving force for financial deregulation in the 1980s, if I recall, was much more about a concern that if nothing was done then London would fall behind. It wasn’t seeing this as being the great future. It was more a question of, ‘How do you retain the position of London within the world financial system and how do you retain the jobs?’ The system as it was couldn’t really cope with what was happening elsewhere in the world, particularly in New York and Hong Kong. It wasn’t a case of preferential treatment. It was saying, ‘Here we have this important industry, to what extent is it being held up by the regulation that we have imposed upon it? Is it sensible to relax that?’ That was the direction of travel.
It was never felt that by choosing one place where there was an opportunity, you were damaging another part. Even with investment and the encouragement of particularly the Japanese motor industry, it was seen as persuading investors to come here rather than going to other countries. Ideally, government would encourage them into areas which would be helpful in terms of the balance of the economy. Nissan was right at the beginning. It was a very critical step. Having that important company going to the North East of England has turned out to be a major success.
Q: In retrospect, do you think that approach was right?
I do. If I asked myself the question, had the government not reformed the City and implemented the liberalisation that allowed it to be successful, would the rest of the economy have been better off? I don’t think so for a minute. It might have been relatively better off, but not in absolute terms.
There were some places where choices were made, like encouraging inward investment to certain parts of the UK. Obviously, there had to be some choices there. In some infrastructure investment, the government chose Liverpool; in other things, Manchester and Salford – and of course, Canary Wharf.
The government didn’t ‘do’ Docklands and Canary Wharf. The government enabled Docklands. They built the Jubilee line extension so that the tube went to Docklands. The Big Bang was the beginning, but subsequently government supported the infrastructure of Docklands and making it an attractive place. People showed an interest, they wanted to invest in it. Why turn your back on something which looks like a great opportunity to revitalise a difficult part of London?
Q: Do you think there was not enough invested in infrastructure and other – for example, cultural – revitalisation efforts in the other cities?
In retrospect, I think there is force in what you say. I’ve been engaged in a transport study for the Welsh government in Newport and Cardiff because they decided not to build the M4 Relief Road. The M4 is often very congested once you are over the Severn Bridge in South Wales. They decided not to build the Relief Road for various reasons to do with the damage that it would have done to the environment where the new motorway would have gone – the decision was also part of the climate emergency agenda. I spent a lot of time looking at the area of Newport and Cardiff, and its relationship with the Valleys as they go down to the coast.
In the last 20 years, since I stopped being active in macro policies, we have seen the development of the growth-and-agglomeration thesis and the way in which cities have really taken over as growth centres. The very good jobs, tend to be in cities. In addition, there are a lot of service jobs which are supporting both the cities, but also those who live outside the cities and who travel to work in the cities. What we see in South Wales, but also in Manchester and Leeds, is that there has been a huge underinvestment in enabling those people who don’t live in the cities to be able to effectively work in the cities. This is a problem still today.
If I look back 40 years, I’m not sure people anticipated the extent to which the cities would become the dominant focus of what you might describe as good jobs. Graduate jobs are disproportionately in cities, whether they’re in companies, universities, hospitals, research or in government departments. The one-time notion that you took jobs to the places of unemployment failed as a strategy. These jobs never lasted very long. The good jobs went to the cities and it was therefore a question of how to get the people who didn’t live in cities to travel into the cities to be able to take advantage of the opportunities.
Q: If resources were not a constraint, what investments would you be prioritising for Newport and Cardiff to help them prosper?
My main focus was on how to have a transport system that really looked like London’s transport system. London’s transport system is extraordinarily successful. It shifts a huge number of people in and out of London every day. Most people who work in London don’t live in London. The South East as a whole has benefitted from this. The number one thing you want in many other places with access to cities is a transport system which is as good as the London transport system.
On the other hand, some other issues emerged to take advantage of what we learned during the pandemic. Should government build or take over and have many more localised offices, where people could spend part of their time working? In some of the disadvantaged areas, working from home is no fun. It’s not what they want to do. They don’t have the right equipment. They don’t have the right space. We started to look at the whole question of how to exploit some of the under-used government offices that were in the towns, as opposed to cities, where people could be working close to home for part of the week, to avoid daily commutes of 25 or 30 miles.
I agree you do need the culture and the lifestyle of cities for younger people. Many are going to want to be in cities. It is very difficult to stop the drift for people at that stage in their life. This is what happened in London. I don’t see it being any different anywhere else, and I think that’s perfectly natural. Young people, unattached people, prefer to be in the social centres.
The other cities, in their own terms, are also very successful; for example, Newcastle, Leeds, Manchester, Liverpool. The people who live in those areas, don’t feel that they are underserved in terms of what’s available for their social life.
Q: Do you think we have the balance right between investing in infrastructure, in skills, and in promoting business clusters to support regeneration?
There are weaknesses in each of the areas you mention. The transport infrastructure in a lot of places is poor. With regard to skills, there’s an important issue as to whether standard degrees are the right courses for the people who are going to be working in those areas. The National Health Service, for example, is a very big employer in many places. Are young people getting the right tertiary education that’s appropriate for that?
When it comes to encouraging clusters, I’m not so sure about this. Do we need to encourage them? Clusters are one of the things that do ‘just happen’ – as long as you make it easy for people to access them and you provide appropriate sites to establish them. This is an area where self-interest is a great driver. Look at what happened across the whole stretch from Reading through to Swindon, which did much better in the 1990s than other parts of the country. They had a lot of tech businesses which came to the area.
Local authorities go through the process of trying to encourage clusters. For example, Newport has the Office for National Statistics and the Intellectual Property Office. This required a big piece of land, and they decided to build quite near to the motorway. Unfortunately, it turns out, that was a problem for traffic management! Local authorities must then decide what to give space to and sometimes you need an anchor tenant to get the thing going, in which case you normally give good terms to the anchor tenant.
If a Local Authority has a site and wants to develop it, they will want that process to be competitive and to see who comes forward. They will try to offer terms for the companies who are not only going to give you the best shot themselves, but also be attractive neighbours for the companies who might come along and join them. Developing clusters has been a slow job, but there have been successes, not just in the Isle of dogs, but Salford, Manchester, Liverpool and Bristol.
Q: With those cases – or international cases like Bilbao – is there an argument that this redevelopment has come at the cost of ‘good jobs’, by creating lower-paid service jobs?
I agree with your concerns. It is very difficult to keep some places from being taken over by retail parks where the jobs are not very good. I’ve just spent a month at my house in Wales. We’re about 20 miles from Merthyr Tydfil, a relatively disadvantaged place and there are now two huge retail parks, one on either side of the relatively new bypass. There has been one retail park there for some time, which has an M&S and a Curry’s. The other side of the road now has a huge Trago Mills with everything in one place. Presumably it is there because the land was available. There are plenty of people who want to work in retail in that area and it’s beside the motorway. But the consequences for the High Street in the town cannot be good.
It’s very unfortunate and I worry a lot about the future of the town which only developed into its present size because of coal and steel. In the late 1940s, Hoover built a washing machine factory, but it has now closed. For me, the notion of taking jobs to areas of deindustrialisation has a poor record. However, Merthyr is at the head of the Valley and the journey from Merthyr to Cardiff takes an hour and there has not been a good quality train service although there are plans to improve it. People want to live there, they have family ties and they can’t afford to live anywhere else.
That’s why, for me, good public transport access is such a key issue. The UK has many places like Merthyr which grew rapidly during the Industrial Revolution, but where the industries on which they were based succeeded for a relatively short time. Parts of the North West, for example, Burnley, Blackburn and other cotton towns have had a very similar problem.
It is important that we do not give up on these places. You can’t say, ‘I’m sorry, you’ve all got to move,’ leaving behind an American-style ghost town. There is also a danger of having a concentration of people living in these towns on low incomes, because the houses are relatively affordable, who are the least likely to be able to travel to work. They then get locked into a certain type of work. What is needed is a much more diverse community.
I think we’ve begun to think about this in a much more constructive way. However, I’m worried that some people are now beginning to argue, ‘We don’t want agglomeration. We really want to restore the old towns rather than developing the cities.’ This strikes me as being much the same challenge as the notion that you take jobs to people – you are trying to push water uphill. Many families have cars, they can move around. They’re not shopping in local high streets. This is not just a post-industrial problem. Much the same is happening in rural Britain where there is relatively little activity in the High Street. People live there, but they work, do their shopping and go for their social life somewhere else.
Q: What is your assessment of local and regional government capabilities and capacity? What could be done to enhance that capability and capacity?
There is a danger that trying to organise interventions on a regional basis upsets many people. Either they don’t want to be identified with that region or they would prefer to be associated with another area.
The question of identifying the optimal size of regional government, or local government, which suits people is very challenging. My observation is that you need size to be able to carry substantial weight, but the result is that many people feel they’re not really part of it. So the size needed for financial muscle and the best size for maintaining people’s feeling about belonging to the area may not go together easily.
I note what happened in the North East which has three substantial conurbations – Sunderland, Newcastle and Middlesbrough. They are very different types of places. Historically, they have not seen themselves as being associated together. As a result, they rejected the idea of a North East Assembly back in 2004 and there is no strong push for a North East Mayor.
ENDS