Lord Peter Mandelson is a member of the House of Lords and served as MP for Hartlepool from 1992 to 2004. He served as Secretary of State for Trade and Industry in 1998, and again as Secretary of State for Business, Innovation and Skills from 2008-10. He was European Commissioner for Trade from 2004 to 2008.
This interview was conducted on 21 February 2022.
Q: What was your role in growth and regional policy? What were the key successes and key frustrations of your time in office?
My first exposure to government policy and intervention locally was as a Lambeth Councillor between 1978 and 1982. The riots in Lambeth and in Toxteth attracted substantial government intervention, led by Heseltine in that early period – as well as later, when he came back to serve John Major. I saw it more in Lambeth where there was a Labour controlled local council that was contributing very little to the economic development of South London, instead politicising everything, attacking the police and the Tory government, and making the council go broke. Toxteth was the more interesting demonstration of central government interest, focus, power and ability to lever in resources.
My next exposure was after I had been elected member of Parliament for Hartlepool in 1992. The Teesside Development Corporation had been created on the model of Heseltine’s earlier London Docklands Development Corporation and Merseyside Development Corporation. We had a mini version of this [the Teesside Development Corporation], which was again central government levering in resources and executive-style action in a way that didn’t exclude local views or a role for the local council, but superimposing a new institution on to it.
This was followed by something called City Challenge in the 1990s, for which I, together with the chief executive and leader of Hartlepool Borough Council, put together a successful bid. We took it very seriously. It preoccupied me a lot. It preoccupied the council. I don’t remember what the sum of money was. It wasn’t huge, but in those days it was quite significant. Later on, in the 1990s, we had Single Regeneration Budget money, which again was a continuation of Heseltine’s role and activities in his department and as Deputy Prime Minister.
In 1997 Labour came into office. I’ll come back to the New Labour government’s general philosophy, because I think it’s very important to understand our thinking at the time. (The Treasury was, continues to be, and probably always will be the big rather unhelpful elephant in the room in all these matters because of its reluctance to lose control.)
The Regional Development Agencies (‘RDAs’) were important. Heseltine’s development corporations and our RDAs were the only successes where effective institution building took place. In my view, without strong institutions, there’s no hope of lasting impact and continuity of regional or industrial policies.
There was a renewed appetite for devolving money and power to the regions with George Osborne’s Northern Powerhouse but more limited institution building. The Local Economic Partnerships (‘LEPs’) have not been a success. Heseltine invented LEPs as an alternative to RDAs when he was working for the Coalition government. There was also a Regional Growth Fund, basically a big pot of money sitting beside the minister’s desk in Whitehall from which handouts would be made. My strong feeling is that without institution building, rather than central pots of money, you will not get impact, continuity or sustainable change.
This institution building has to be a combination of machinery underpinned by a UK-wide, cross-party consensus in favour of intervention, plus effective local executive capability. You need both. You can’t, in my view, have the one without the other. You can’t regenerate regions or places or towns simply by a top-down manoeuvre or deployment of money. There has to be local institution building, local decision-making. You’ve got to have both of these things. I don’t think we’ve ever been able to establish in this country a consensus which was deep enough and long enough to create and sustain lasting machinery and institution building and deployment of investment to know really whether these policies of intervention were likely to succeed or fail. We’ve had a seesawing, yo-yo like existence. I am sure that if they had been sustained for long enough and underpinned by a strong enough consensus coupled to strong local leadership, RDAs would have been able to show much more benefit for the money that was being deployed.
Q: You have talked about three phases: pre-1997 development corporations; the period when you were in government; and then what we’ve seen since 2010. What is your assessment of the capability of local leadership and institutional arrangements in each of these periods?
Look at the difference between Gateshead and Middlesbrough. The Labour leader in Gateshead was strong, focused, purposeful, coherent. He went on for a long time and made a real lasting change. We didn’t have that in Middlesbrough, which was nearer to Hartlepool. We didn’t have the leadership in Teesside. Newcastle is another good example of the importance of leadership. There was a strong Labour leader in Wigan, Peter Smith. You had these visionary, effective – bordering on autocratic – leaders who assembled a good set of officers around them, had strong buy-in from a united Labour group where there was also probably also cross-party consensus. The difference in quality of local leadership is chalk and cheese. That’s what I mean when I say we need a UK-wide set of policies and focus and machinery, allied with strong local leadership. Gateshead and Wigan are two examples, one in the North West and the other in the North East, where strong local leadership made a huge difference.
Q: How do you respond to the criticism the RDAs were unresponsive to local leaders, given their large footprint, business chairs, and accountability to the Department of Trade and Industry [DTI]?
The RDAs were set up jointly by me and John Prescott, in DTI and the Department for the Environment, Transport and the Regions (‘DETR’). I insisted on them being business-led because I felt very strongly that you couldn’t pick one local government leader from one area and put him or her in charge of the entire Regional Development Agency (‘RDA’); but also because I saw the work of the RDAs needing to go with the grain of the market and business growth, levering in private investment, which I saw as being of paramount importance and at the heart of what we were doing.
My idea – not quite the same as John Prescott’s – was that RDAs were about bringing some government heft and pump-priming to what private business could and should be doing: seeing market opportunities, capitalising on the R&D that was taking place in universities and harnessing the innovation that was going on locally. If you didn’t go with the grain of markets and if you didn’t harness the entrepreneurial skills and enterprise of business as well as business leadership, then you were likely simply to rearrange the deck chairs on a public sector boat. It needed private sector drive and enterprise because the whole point of RDAs, as I saw it, was to find ways to replace the private sector and business drivers that had declined and gone and replace them with a new business spine of private sector activity. That’s why I wanted them to be business-led. That’s not to exclude public sector or local government. On the contrary. I saw it as a marriage between the two. But you couldn’t just select an individual from one part of an RDA local government area and put them in charge of the agency as a whole.
Q: What was your assessment of the RDAs’ capabilities?
Mixed. On the whole good. They were effective. They were well run. But they faced a lot of Treasury scepticism. Let’s be absolutely clear about this. The Treasury was ‘small state’ on industrial and regional policy and ‘big state’ on welfare and redistribution. I think that the Treasury after 1997 continued with what was essentially a Treasury orthodoxy that markets and ministers don’t mix. I think the Treasury championed the view and I think that Gordon Brown as Chancellor quickly adapted to this: that ministers should lightly regulate markets, not second-guess markets, and ensure competition within them. The job of government was to make markets competitive and open, to combat market abuse and dominance, but not to over-influence them.
I think that the Treasury scepticism of regional industrial policy was that it shoehorned ministers and officials into the more efficient workings of markets in a rather arbitrary and sometimes careless way. I remember in 2008, when I brought my first industrial policy activism papers to the National Economic Council, which met in COBR, Ed Balls was the only person who pushed back against me – slightly tongue in cheek I thought at the time, but actually on reflection perhaps being serious. He said the role of government and New Labour’s view of markets is very clear: make them open and competitive. Don’t allow market dominance from incumbents. Allow people to bring new products and services to market. That should be the extent and limit of government’s role in relation to markets. And that what I was trying to do was to override market mechanisms in ways that was un-New Labour. Needless to say, I pushed back strongly against this. I was pro-market but not a purist.
That attitude reflected a wider New Labour, supply-side emphasis and approach. We adapted pretty quickly to the economic settlement that we inherited from the 1980s and the 1990s. Businesses should be driven by markets. Capital should be deployed by the private sector. The role of government was to create the best supply-side conditions – we called it supply side socialism, slightly tongue in cheek. – in preparing a flexible and well skilled workforce, building infrastructure, not making business taxation too onerous, regulation where appropriate but not too intrusive. Regional and industrial policy did not fit entirely comfortably with that approach.
Q: Did you change your philosophy?
Yes. I went to Europe for four years and saw the benefits and advantages for European countries from having a national cross-party consensus that provided for a continuity of government policy in relation to industrial and regional policies. I saw in Germany, for example, very strong Länder and local leaders who were really institutionally powerful. I saw a very different partnership of the private and public sectors. I’m afraid our experience at the beginning of the government in 1997 of what the Treasury saw in Public-Private Partnerships was basically their alternative to industrial policy. Pre- and post-1997 government borrowing was more expensive, and therefore it made sense to make heavy use of private capital I suppose. We got round the costs of borrowing by creating these PPPs. I’m not really sure how successful that was. In the end it became more expensive than would have been the case had we just borrowed the money.
Q: Wasn’t the DTI approach to industrial policy in the 1980s and throughout the 1990s more ‘national’ than devolving, focussed on bringing in foreign direct investment?
Yes and successfully. We had the biggest FDI of anywhere in Europe. We had a UK-wide approach which was to make the economy run as best we could, to create as much fiscal space to give us money to deploy for our supply-side policies. There was some regional focus but government’s priority was the FDI. We were thinking of the UK, its competitive strengths and advantages as a whole, rather than the competitive strengths and advantages of particular places. Place has now obviously strongly risen up the agenda.
I think the scepticism of a more interventionist regional and industrial policy reflected the wider, deep-seated, Treasury belief after 1997 – and it was a wider New Labour view actually – that there were inherent limits to domestic policy’s ability to alter long run economic performance. In a sense, the reasonable vindication of that approach is that the Labour government did see the longest phase of continuous growth in recent British economic history. So what was there not to like? Who could say that we were failing? Yes we precluded more active and high profile industrial and regional policies. But the overall UK economy as a whole didn’t seem to suffer and so in the view of many was that we weren’t justified in ploughing money and diverting energy into these policies apart from the RDAs. It was overall economic growth and productivity gains, not more interventionist regional and industrial policies, that lifted all boats. That was the Treasury view. If the UK economy did well, everyone would do well and trying policies of intervention or rebalancing were seen to be naively motivated and futile. Gordon, I remember, was pretty critical, publicly critical I think, of what he regarded as the old-style regional policy of the 1960s. Yes, he supported our RDAs, but I don’t know how enthusiastically he embraced them rather than tolerated them and I do not remember Tony Blair being any different.
Q: There was also quite a lot of Downing Street scepticism about local government?
Yes, local government had gained a bad reputation at the hands of the hard left. But we also didn’t want to superimpose elected regional authorities over local government. We didn’t want to replace local government. Later, Tony was very strong on executive, directly-elected mayors, which John Prescott resisted. There was a “Gordon plus Prescott” bias in favour of local government but I wouldn’t describe that as enthusiasm for local government because we were products of the 1980s when the so-called loony left held sway.
There was also a Strategy Unit report which asserted that economic disparities within regions were more significant than differences between regions. I don’t know what effect that had on policymaking at the time, but there was scepticism about regional policy that seemed to be reinforced by that finding – in effect that tackling poverty within regions was more important than trying to level up whole regions. I think the view was that what the government lost in not having more interventionist policies, it made up in overall economic management and attraction of record FDI and that poverty alleviation would do the rest. Why did we need more interventionism when our overall management of the economy seemed to be working; when the importance of disparities between regions was actually being contested; and when what we really needed was more 1980s style Japanese style FDI that would bring fresh industry to areas of the country where manufacturing was in sharp decline? That was pretty much the rationale.
Q: What was your experience of different government departments – Education, Transport, Work and Pensions – in their attitude to devolution?
My general observation is that we live in one of the most centralised political systems in the West and that we didn’t as a government redress that except in respect of devolution to Scotland and Wales. I don’t think it was a difference between departments. I think there was a Whitehall-wide view that markets rule and where they needed adjustment this was the job of central government. I remember bumping into Gus O’Donnell, the Cabinet secretary, in the corridor. He said, ‘Peter, I just don’t understand you. I thought you were New Labour. What are you doing? You’re standing New Labour philosophy on its head with your industrial activism. You’ve become all anti-market.’ He genuinely couldn’t understand what was happening. He said, ‘You know, you’re trying to rewrite the rules and I don’t understand why.’.
Of course, I wasn’t at all anti-market and retained this ethos even when I introduced the new industrial policies in New Industry, New Jobs in 2009. The policies weren’t very radical, by European standards they were they were pretty tame and piecemeal. I had already accepted to deliver a lecture, the Hugo Young lecture, about trade when I was the EU Trade Commissioner. I then came back to the government and decided to change the subject from trade to the relationship between government centrally and locally and, industrial and regional policy – have we got the balance right? It was mild and tentative, but I was basically challenging some New Labour orthodoxy. I remember sending a final draft to Tony, because I didn’t want it to be presented as critical of the government under his premiership. He rang and alighted on a paragraph in the lecture. He said, ‘This has got to come out.’ And I said, ‘Well, you know, it’s pretty lame.’ He said, ‘No, it’s got to come out.’ He saw it as an attack on New Labour philosophy. And he said, ‘What is the matter with you?’ You see, that was when he was starting to see Gordon as using the global financial crisis as the justification for reinventing big state, big spend, big tax Labourism. That was Tony’s view. He saw my initial lecture as somehow paving the way for it.
It was ridiculous. We were activists in many respects. We were part ‘liberalisation of markets and open economy and free trade’ coupled to an ambitious redistributive agenda through welfare state activism, as I described it, with huge upticks in the proportion of national income devoted to health and education. I think that, as far as markets were concerned, the United States provided the model for light-touch regulation, including of financial markets, and capital liberalisation and free trade, stuff which I think we took as the successful lessons of American capitalism and which the Treasury identified with Alan Greenspan. At the same time, what we were trying to do was to couple the dynamism and free market enterprise of the American economic system with Western European social cohesion. We were trying to marry American capitalism, Western European social cohesion through our activism in relation to welfare, health, education etc.
Q: What was the role of London in the wider UK economy?
I don’t think it makes sense to present different regions of the UK as being in competition or opposition to each other. There’s a mutual interdependence in the UK. An underperforming economy in London and the South East is not going to do anything for prosperity in the North. The emphasis on financial services and light-touch regulation started generating massive amounts of revenue that we then deployed and redistributed into social welfare policies, public sector provision and, to a limited extent, regional policy. We wouldn’t have had those resources, we wouldn’t have had that fiscal headroom, had it not been for the revenues that were coming from London and the South East. I realise the public doesn’t see it that way. They see it more in zero-sum terms. I’m sure that many people in London and the south-eastwill view the present government’s Levelling Up agenda as an attempt to rob London and the south-east of their livelihoods and of their public services. I think that’s nonsense. London and the south-east are important but they are not the only priority.
Q: In the New Labour years, was the objective only about UK growth and then using the revenues to redistribute or was there a specific regional objective?
It was primarily the first, coupled to a very substantial investment in, and direction of policy towards, cities. David Miliband, when he was the minister of state in Prescott’s department, was an architect of city-region policy and strategy. Personally, I thought that it was a reasonable policy assumption that a growing, thriving city would contribute to a growing, thriving region from which the towns and communities of that region would benefit. I remember arguing this in Hartlepool in relation to Middlesbrough and Newcastle.
It’s now been discredited by the term ‘trickle out’. Ed Miliband used this expression to condemn New Labour and our ‘neoliberal, trickledown economics.’ I’ve noticed that ‘trickle out’ economics has now been added and that’s used to criticise the last Labour government’s policy of favouring and regenerating cities. And we certainly did regenerate those cities. Manchester, Liverpool, Leeds, Newcastle, Bristol – look at the success and turn-around of those cities. But nowadays, I’m afraid, cities versus towns have become a new fault line in policy, that we favoured cities at the expense of towns.
Q: RDA policy evolved to focus less on the whole region and more on the city-regions. Since 2010, the evolution of sub-regional elected mayors has been patchy, with towns like Burnley or Blackburn sitting out combined authorities. How do you view that?
Hartlepool has been taken into Teesside, although the preoccupation of the directly elected mayor [Ben Houchen] is very much in and around Teesside Airport. They are extending the benefits of the Freeport to Hartlepool, at least in theory. I’ll believe that when I see it.
Can I contest the idea that our RDAs were focused on cities? I think they were focused on some important structural questions in their regions: the attractiveness to business of investing and expanding in the region including in the availability of skills, the quality of infrastructure, connectivity across the region and with the country as a whole. That’s where the RDAs were focused, as well as on providing specific benefits and inducements to companies to come. I really don’t accept that the RDAs were focused on cities at the expense of towns and communities elsewhere in the region. There is no evidence for it, it just suits the argument being made now.
Q: And the decision to abolish them in 2010?
Wanton, irresponsible vandalism. It was so counterproductive. They should have learned lessons, adapted and built on the RDAs. Abolishing them was a piece of shallow, irresponsible pique on their part. I know that people like Vince Cable, Nick Clegg, Michael Heseltine, who went along with it, regretted it subsequently.
There’s one other factor that I must cite, and again I’m going to have a bit of a go at the Treasury. That is on the issue of capital spending. Governments of all parties have a chequered record on capital spending. Treasury ministers found it easier to rein in capital spending than the alternative revenue spending and transfer payments. There wasn’t an immediate political cost in cutting capital spending or pushing it out further. When we came to office in 1997, public sector net investment was close to zero, even one per cent of GDP. It didn’t really go up at all between 1997 and 2001. I think by the time we left office in 2010, it was at about 2.9 per cent. Then, of course, it was cut considerably by George Osborne. It probably rose a little bit under Theresa May.
My view is that this has had a disproportionately negative impact on already hard-hit regions of the country. I would cite it as a major shortcoming in policy. If you look at the Northern regions and the Midlands, the stop-go in capital spending, pushing it out further, the lack of policy continuity…capital spending is of its very nature long-term, so you do immense damage by cutting it.
The truth is that there wasn’t a strong enough consensus in favour of maintaining and expanding capital spend. Politically, there was a greater reward in increasing and spending money on the rollout of tax credits than there was building roads and railways and other forms of connectivity in the regions. It’s a big policy flaw for us as well as the Conservatives. (More for the Conservatives during the austerity years under Osborne, but a serious flaw for us as well because it just takes so long to turn around, to remedy.) When I talked to businesses in Yorkshire or the north-east, educational attainment, skill levels, connectivity, how they get skilled employees travelling by car an hour away through completely congested roads are the issues raised.
HS2 is going to bleed resources from the rail network as a whole. I think the cost of HS2 cannot fail to drain the rest of the rail network. The intercity network, the national rail network and regional network connections…it can’t help but divert resources away from that side of the rail equation. I fear a high speed funnel is likely to operate, taking people and investment in business in the North and funnelling it down to London and the south-east.
Q: Did the RDAs lack democratic legitimacy? Would more radical local government reorganisation have been a better way forward?
I don’t think that was the biggest problem with the RDAs. There was a lack of central government commitment to RDAs plus a major cumulative negative impact on every region’s transport, infrastructure and other connectivity as I have described. I think it’s been the biggest constraint on regional business growth. The lack of capital investment had a much bigger negative impact on RDA performance than their political leadership or accountability. Having said that, I am a believer in English devolution. I’m Chancellor of one of the universities in Manchester. I go every month and I think that the Greater Manchester Combined Authority and its directly elected mayor are a real institutional advance. It’s a model that’s proven its value.
Q: What about the places like Burnley or Blackburn that are outside the Greater Manchester combined authority but are actually part of the Greater Manchester economy?
It’s a problem. I see it also in Hull. I’m the High Steward of Kingston upon Hull, as was my grandfather. Hull is not part of any combined authority and doesn’t have a directly elected mayor. There’s never been a consensus in Yorkshire about devolution, apart from West Yorkshire, but on the central and eastern and northern parts of Yorkshire, there’s no consensus, and I feel they lose out from this. I don’t know what to say to you about Blackburn and Burnley. I don’t know what their populations are. I don’t know whether they are seriously disadvantaged by the existence of Greater Manchester. I would be interested in the evidence if this exists.
Q: When you look back over the whole period, what’s the one thing that you think really worked? What was the biggest disappointment?
The biggest disappointment is the absence of an agreed, broad-based national consensus in favour of strong regional and industrial policies, plus the terribly centralised political system we have in this country, which has denied regions and localities effective political leadership. We need institution building, but there’s never been a deep enough consensus around what that institution building should consist of. There’s always been resistance to decentralising power, apart from to Scotland and Wales. Now you see in Scotland the resistance to devolving power from the SNP government to anywhere else in Scotland. We seem to be born centralisers, even where we have devolved. But it’s most serious in England.
I think the RDAs were really important. I remember during this period having a fearful row with John Prescott over Cambridge. I wanted to build Cambridge up as a major economic focus for the whole of eastern England. I even nominated, within my department, David Sainsbury to be the minister for Cambridge. Cambridge was already a centre of enormous R&D, intellectual property, innovation, venture capital. I thought if you could make Cambridge a really big economic motor, it would spread activity and wealth out across the eastern England. John Prescott wouldn’t even give permission to Cambridge University and the City Council to expand the science park in Cambridge. It came up to him as Secretary of State because they kept appealing and he rejected it. I couldn’t believe it. I had this terrible phone call with him and he said ‘I’m not interested in pandering to a bunch of academics sitting around drinking port in their colleges.’
The science park was so small compared to what exists in Cambridge now. They had start-up companies, new enterprises, R&D being spun out from university research. And the East of England RDA was absolutely at the centre of it, connecting Cambridge to Norwich, Ipswich and into London. That was that all RDA driven. I think the university needed that impetus. John subsequently found a way of changing his mind, I am glad to say, and the science park was expanded.
The RDAs were intelligent, thoughtful, innovative policy and institution building. They should have been allowed to continue to exist and to evolve, placed within some form of democratic framework regionally rather than axed.
ENDS