Divided we fall: regional gap is growing

Regional disparity has increased by more than 30 per cent since Labour first came to power according to a Treasury report.

The UK Competitiveness Index, published on Monday, revealed that failures of government policy and inequalities in the way government cash is divided between the regions had led to the gap between North and South growing since Labour's 1997 election win.

The most embarrassing news for the government will be the conclusion that the country's three hardest-hit regions - Wales, Yorkshire and the North East have seen the gap between them and the capital grow by 30.5 per cent.

The bottom three are massively behind after researchers measured factors such as gross domestic product, productivity and economic activity. They are still largely reliant on traditional industries and have yet to make significant in-roads into the knowledge-based industries.

When in opposition, Labour consistently claimed that the Conservatives were only interested in the "commuter belt" so today's findings will lead to claims from both Labour's left and the Tories that the party has abandoned its core supporters.

The report by the Economic and Social Research Council calls on the government to ditch the controversial Barnett formula which for decades has decided how Treasury cash is divided up for the regions. Critics have argued for years that the formula, which was introduced as a stop-gap measure in the 1970s, has led to Scotland and Wales receiving a far greater allocation of funding than some of England's poorest areas.

Increasing the UK's competitiveness has been one of the key goals for chancellor Gordon Brown in his second term. He believes the country is massively behind both EU and US rivals in key industries and plans to use the regional development agencies as a way of not only devolving power but getting more money into the parts of Britain that have become the "Cinderella cities" that have been left trailing in London's wake.

The report warns the chancellor that his plans could already be in trouble as the index concludes that spending for nine of the RDAs falls short of what is needed and the government departments central to delivering improvements are not co-ordinating their policies.

It also predicts the situation is unlikely to improve before the next election, saying the gap will continue to widen until at least 2010 as manufacturing within the poorest regions goes through a period of restructuring. Worse still, the spread of new industries such as those in the IT sector is likely to remain centred on southern and eastern England, where there is a critical mass of companies, resources and infrastructure.