Ben Farrugia: Cut £2bn from small business taxation by abolishing Regional Development Agencies

Ben Farrugia is a Policy Analyst at the TaxPayers’ Alliance and is a co-author of the report “The Case for Abolishing the Regional Development Agencies” (PDF). You can join the TaxPayers’ Alliance for free here.

Since they were set up in 1999, the Regional Development Agencies (RDAs) have spent a huge amount of money - £15.3 billion to be precise – but have they achieved anything?

The claimed achievements of the RDAs are notoriously difficult to pin down, with their own published figures for “jobs created” or “investment attracted” often involving them taking credit for the total exploits of businesses who may just have received a letter or two from the RDA and no more.

To properly assess the performance of these quangos it is necessary to look at the economic data over time. To that end, the TaxPayers’ Alliance have studied in detail the official statistics for job numbers, employment levels, new businesses and economic growth for England’s regions back to 1992, allowing us to compare regional performance in the seven years before RDAs were created and in the seven years after.

The findings are shocking: in the vast majority of measures, across the vast majority of regions, the English regions were developing faster before RDAs were introduced. In many areas, development and growth has slowed in 1999-2006 compared to 1992-1999. In some, the regions are actually worse off than before. Overall the gap between England’s richest regions and the poorest has grown – hardly a testament to the success of the quango-based strategy.

A lot of the money has been wasted in a flurry of international travel, shiny offices and abortive projects, but the failure of the Regional Development Agencies is down to much more than a scatter of wasteful policies. The very concept was fatally flawed from the outset.

If you wanted to encourage business growth and create jobs, who would you choose to do it? The businesses themselves, with a direct financial interest in ensuring that their money is well spent and that the activity produces results? Or an army of unaccountable quangocrats, many of whom have no business experience, charged with ticking a series of boxes decided in Whitehall and passed down to the regional bodies?

For some reason, the Government chose to gamble the success of the regions – and £15 billion of your and my money – on the latter option. That gamble has clearly failed, at huge cost, and the RDAs should be abolished as soon as possible in order to turn off the tap that is gushing money straight down the drain. The £2.19 billion they are budgeted to spend in 2009-10 would be enough to provide a 4p cut in the Small Business Rate of Corporation Tax, which would offer real assistance to businesses in expanding and creating new jobs.

Beyond the message that the RDAs should be consigned to history as soon as possible, there are wider lessons that must be learned. First, there are some things that Government of any level simply should not be doing – in this case, trying to force economic development onto businesses by planning it on a spreadsheet in Whitehall. Second, people and organisations spend their own money better than any civil servant, politician or bureaucrat ever will. Particularly if you want to help the economy, the best thing the State can do is make the road smoother by meddling as little as possible. Third and finally, whatever Government does do must be done accountably, transparently and on as localised a basis as possible. They might have been regional in name, but the RDAs have always been much more an arm of central government than anything to do with the people of the areas they sought to develop. They have been able to get away for so long with spending so much and achieving so little precisely because their was no-one other than a select band of Ministers and other quangocrats who had the power to hold them to account, still less sack them.

The RDAs must be abolished swiftly, but even after they are long gone we must keep insisting that every Government action is assessed with the following three questions: does this need doing? Why should it be the State that does it? And finally, how will the people footing the bill be able to make sure that it is being done properly, and put a stop to it if they are dissatisfied? If those questions had been asked in 1999, the RDAs would never have been created, £15 billion would never have been squandered and this mess would never have arisen.