The North-South Divide and Margaret Thatcher

The North-South Divide and Margaret Thatcher, by Kim, Changhyun, Oct 2005

Margaret Thatcher and Regional Policy

Regional policy had its costs. According to Department of Trade and Industry's 1984 white paper Regional Industrial Development, the average amount of money spent per job created through regional policy during the 1960s and 1970s was 35,000 pounds in 1984 prices. In the extreme case of Sullom Voe oil terminal in the Shetlands, each job worked out at a cost of 125,000 pounds.
The cost of creating a job through regional policy was large because regional policy subsidized all manufacturing jobs in a given area, including the ones that would have been there even if there was no regional policy.
Another cost of creating jobs through regional policy was loss of jobs from the South, which was intended. However, although attempting to redirect an industrial development in the South to the North sometimes succeeds, but it sometimes results in no development at all. This problem was articulated by Margaret Thatcher in July 1985 when she said,
"It is no part of our policy to direct where people shall live or where firms set up or expand. If we try to discourage development and economic growth in large parts of the South of England in the hope that it will happen in the large cities in the North, we risk losing them altogether."
Margaret Thatcher and many others in the Conservative party saw regional policy as excessive state intervention. She believed that subsidies to underdeveloped regions preserved inefficiency and overmanning and hampered their development in the long run.
She was able to get more support for her program of limiting regional policy because the unemployment rate remained high almost throughout her period in office. During the 1950s and the 1960s, the South had to worry about the economy being "overheated" or "congested," and the nation as a whole could benefit if some Southern jobs were relocated to the North, even if there was a net job loss. However, when the unemployment rate is high, policies that can potentially raise the overall unemployment rate are less favored.
Her first term saw a radical pruning of regional policy. Development certificates were abolished soon after Margaret Thatcher came to office. In 1979, office development certificates were abolished and industrial development certificates soon followed. While the government continued to provide incentives to locate in assisted areas, firms were no longer prevented from setting up or expanding in certain areas. Also abolished by Margaret Thatcher's government were economic planning councils, which had been set up by Harold Wilson's Labour government in 1964.
Less areas were made eligible for regional assistance. Before Margaret Thatcher came to office, 47% of the working population was covered by regional assistance. In 1982, only 28% was. Much of eastern Scotland, a belt stretching up the centre of northern England and southern Scotland, and most of rural Wales lost assisted-area status over this period.
Regional development grants were cut and made more difficult to receive. The regional development councils were disbanded.
In 1984, there was another redrawing of the regional policy map. Now only 15% of the working age population would be covered by regional assistance. A cost per job limit of 10,000 pounds was imposed, except in the case of smaller projects involving fewer than 200 workers. In 1988, automatic eligibility for regional development grants was ended; firms now had to prove that without grants their projects would be unable to proceed.