Labour thinks small to make a big impact

Power must be returned to the regions for us to compete in the global economy, says John Prescott

The Labour Party's constitution pledges us to strive for "a dynamic economy in which decisions are taken as far as practicable by the communities they affect, and where wealth, power and opportunity is in the hands of the many, not the few". The aim of decentralising power and regenerating our local communities forms an integral part of our strategy for achieving a stake-holding society in Britain. We believe this will bring more accountability and more effectiveness.

Today we receive the impressive and substantial report of the independent Regional Policy Commission, chaired by Bruce Millan, the former European Commissioner for the Regions. As the report of a distinguished, independent body (such as the Social Justice Commission set up by John Smith), the Millan commission's report is not a statement of Labour Party policy. It is in no way binding upon the party.

The report does, however, provide advice on an extremely important subject, and it is based on a great deal of expertise, research and experience. The Labour Party will consider its findings and recommendations very carefully over the next few months. I am sure it will provide valuable guidance for us as we develop Labour's policy.

The report shows how, with different priorities but within existing resources, we could generate jobs and improve social justice by building on our regions. They could become more competitive, with more jobs, prosperity, investment and skills.

The commission regards traditional regional policy as a necessary, but insufficient, instrument for promoting regional economic development. Regional disparities are still a real problem. The North-South divide may have become blurred on official unemployment figures, but it is still strongly apparent on other measures. However, all regions now have problems: even London has areas in which unemployment is among the worst in England.

The new regional policy proposed by the commission is about the better use of existing resources, so as to increase the prosperity of all our regions. It proposes building on the best of current practice. We can learn from the successful development agencies in Scotland, Wales and Northern Ireland.

In England, local initiatives have attracted inward investment packages, such as that for Siemens in the North; they have salvaged Leyland Daf vehicles, produced economic plans for the West and East Midlands, and developed the Leeds to Liverpool canal zone. Just think what we could achieve if we unshackled our regions.

But government policy has been devastating for our regions. It has drastically cut back regional support. For example, in the past 10 years, the DTI's regional selective-assistance programme has been cut from pounds 500m to pounds 100m. And, at the same time, regional economic decision-making has been removed from locally elected representatives and put in the hands of Whitehall and quangos. The Millan commission calculates that more than pounds 11bn a year is spent on regional development, almost all by local quangos and Whitehall. Key areas such as training, transport and elements of the Government's Single Regeneration budget have been taken out of the hands of local elected representatives.

The regions of the United Kingdom are now among the poorest in northern industrial Europe. This is the extent of the problem we now face, and the Millan report concentrates on solutions to it.

We are the only major country in Europe without a proper regional government structure. This puts our regions at a disadvantage in making effective use of European money. Too much is spent on Whitehall's priorities; too little on those of the regions.

Labour has made separate proposals on the political structure of regional accountability, but the decentralisation of power is also a key to economic regeneration. Economic decision-making, in the thinking of the Millan commission, must be devolved from Whitehall, not wrested from local communities or local authorities.

Renewing our regions is not a peripheral subject; it is absolutely central to delivering a modern response to the challenge being posed by the global economy. There is a strong body of evidence which suggests that the influence of the nation state has declined in this new economy. It is through networks at regional level that we can challenge global competition most effectively.

Around the world, nation states increasingly need strong, intelligent regions. Such regions are developing elsewhere in Europe, with a network that helps business reach directly into the global economy, enabling it to adapt to - and exploit - dynamic, fast-moving situations.

Some of the recommendations of the Millan commission are already Labour Party policy. For example, Gordon Brown, Margaret Beckett and Frank Dobson have made clear our support for regional development agencies; they have worked out measures to aid small firms and set out ideas for planning and for London. Other of the commission's proposals will have to be carefully considered within the party before we reach a position on them.

Labour's plans for decentralising and devolving power aim to offer the people of Scotland, England and Wales a greater stake in their society - a new partnership with the people. Vigorous and thriving regions will also be vital to our plans for a dynamic economy that can stimulate sustainable growth. I hope this report will be a milestone on the way to a new, exciting role for the regions in British society.

John Prescott is Deputy Leader of the Labour Party.

For further details of the Millan commission report, see page 15.