Regional policy - Business Environment

A region is a geographical area which possesses certain characteristics (e.g. political, economic, physical) which give it a measure of unity that allows boundaries to be drawn round it, thus differentiating it from surrounding areas. In the United Kingdom the standard planning regions have traditionally been the North, North West, Yorkshire/Humberside, East Midlands, West Midlands, South West, East Anglia, South East, Wales, Scotland and Northern Ireland, with each of these further divided into sub-regions based on administrative counties and on designated metropolitan areas. These planning regions and sub-regions historically have formed the units of classification for a wide range of official government statistics.

With the establishment of the regional government offices and the setting up of the Regional Development Agencies (RDAs) the regional map of the UK has become influenced by these structures. Moreover, outside London, regional chambers have been established in each of the eight current English regions (the North West, North East, Yorkshire and the Humber, West Midlands, East Midlands, East of England, South East, South West) to represent the various regional interests in relation to the work of the region’s RDA. The membership of the regional chambers mostly called ‘Assemblies’ includes representatives of the local authorities, employer and employee groups, the small business sector, the health service, educational establishments, rural and environmental groups and other regional stakeholders. At the time of writing there are no directly elected regional assemblies in England (excluding London) of the kind found in many other European states, although the government has sanctioned the use of referendums on the issue of regional government.
The basis of regional policy
Many countries have a recognizable ‘regional policy’ of one kind or another. Such policies are generally designed to identify and demarcate those geographical areas which are experiencing substantial economic and/or social problems and which are felt to require government assistance. Using a range of socio-economic indicators such as unemployment levels, population density, economic activity rates, incomegovernments tend to distinguish those regions which depart significantly from the national average and designate these regions ‘assisted areas’. These areas then become the focus of government assistance and tend to be given priority in the provision of financial aid for capital projects and for measures designed to increase employment and growth. Such aid generally comes in a variety of forms and may include assistance from international and supranational sources, as in the case of EU regional policy.
UK regional policy
The origins of UK regional policy can be traced back to the 1930s when the government first began to provide help to a number of depressed areas in the form of low-interest loans, subsidised rents and the establishment of government trading estates. By the closing decades of the twentieth century the system had evolved into one in which the government designated three types of assisted area that became eligible for regional aid. These were:

  1. Development areas (DAs);
  2. Intermediate areas (IAs);
  3. Northern Ireland which received special regional help owing to the problems it was experiencing in attracting investment in industrial and commercial projects.

The areas qualifying for government regional assistance under this scheme underwent some revision in 1993. Subsequently, following new European Commission rules on regional aid in March 1998, all EU member states were required to further revise their Assisted Areas maps by 1 January 2000 in preparation for the enlargement of the EU. The UK’s initial response which was submitted to the Commission in July 1999 was rejected and the proposed regional aid map had to be adjusted following consultation with the various interested parties. The revised proposals for a new Assisted Areas map for the UK were published on 10 April 2000.

Under this current scheme regional aid is available in those areas covered by existing EU law (e.g. Amsterdam Treaty Articles 87[3]a and 87[3]c). These areas, designated Tiers 1 and 2, remain in force until the end of 2006, subject to adjustments to reflect any significant socio-economic changes which occur during the period. Should any additions be made to the agreed regional aid map, these have to be offset by exclusions in other areas to maintain the overall population ceiling.

The UK government has also designated a new Tier 3 which extends outside Tiers
1 and 2 and where the emphasis is on aid to small and medium-sized enterprises in the form of enterprise grants. This decision is designed to complement other measures to encourage smaller businesses, including the establishment of the Small Business Service (SBS) and the creation of the Enterprise Fund.

Within the designated areas Regional Selective Assistance (RSA) has traditionally been the main form of discretionary grant aid. This was administered by the Regional Development Agencies and designed to secure employment opportunities and increase regional competitiveness and prosperity. In order to qualify, businesses had to be investing in fixed capital items, with minimum fixed costs over £500 000, and had to demonstrate that a project met a number of predetermined criteria, including creating/safeguarding jobs and contributing positive benefits to both the regional and the national economy. Grants were available to firms of all sizes in Tier 1 and Tier 2 Assisted Areas, with the regional aid guidelines allowing higher maximum grant levels in areas designated Tier 1 (e.g. Cornwall).

In Tier 2 and 3 areas Enterprise Grants were also available to SMEs investing in fixed capital items. The maximum fixed costs had to be no more than £500 000 andthe grant ceiling was 15 per cent of those costs, up to a maximum grant of £75 000. The grant was specifically, though not exclusively, targeted at high growth businesses seeking to maximize value added projects with demonstrable quality outputs and aimed to support projects in these areas that would not otherwise have gone ahead without grant aid.

In April 2004, Regional Selective Assistance and Regional Enterprise Grants in England were replaced by Selective Finance for Investment in England (SFI). SFI is discretionary and normally takes the form of a grant (or occasionally a loan), with a minimum threshold of £10 000. The aim of the scheme is to support new investment projects that lead to long-term improvements in productivity, skills and employment in the assisted areas. Support under the scheme which is administered by the RDAs is available to business of all sizes that are located in (or plan to locate in) an assisted area and which can meet certain criteria (e.g. employment benefits). Assistance is also available to SMEs investing in Tier 3 areas and further support is provided through agencies such as English Partnerships, the RDAs and the Learning and Skills Council as well as through the Regional Venture Capital Funds and the long-standing Small Firms Loan Guarantee Scheme.

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