ACTUALITY. "Three Counties Radio. The congestion on the M25 anti clockwise again is still building. TERRY DIGNAN: The north of England has other problems. ACTUALITY. It's now stretching all the way from junction eleven at Luton North." DIGNAN: The North-South divide is back. While the South East pays the price of success the North East struggles with the cost of failure. Having vehemently denied there is a widening gap between North and South, the Government now accepts there is a serious problem. Even Tony Blair is saying he'll work with every sinew in his body to tackle the problems of the North East of England. But Labour MPs and councillors here say it's the Government's own policies which are to blame. And they're stepping up their demand for equal treatment with Scotland and Wales. That would mean much higher public spending - and an elected regional assembly." STEVEN BELL: So if you look at this chart, basically you know, you see the Stock Market's going up, exchange rate's high - that's obviously good for the South but, you know, not for the North. DIGNAN Steven Bell is from the North East of England. One of the City of London's top economists, his research shows a growing gap in standards of living between North and South. Labour ministers at the Treasury say that's lazy thinking. But many North East Labour MPs are backing Bell's findings. BELL: There's no doubt in my mind that the north-south divide is widening. Wages are higher in the south and they're rising faster. House prices are higher and they're rising faster and people are moving from the north to the south. And of course when they do that, they're taking spending power with them and they're bidding up house prices further. JIM COUSINS: There's certainly a north-east/south-east divide - there's no question about that. No one could argue that there wasn't. Unemployment is so much higher in the north-east - almost three times as high in the north-east as it is in the south east. House prices are soaring away in the south east: we don't have that same effect in the north-east. Economic activity per head - so much higher in the south east than in the north east. And we're impatient to make up the difference." DIGNAN: With winter approaching these birds are preparing to leave the north east. They'll be back in the spring unlike many of the thirty thousand people who leave here every year to find work elsewhere. How bad is unemployment in the constituency?" RONNIE CAMPBELL: Well, in, in places in Blyth itself, old Blyth itself, it's, it's up to fifty per cent. DIGNAN: Ronnie Campbell worked at this once thriving port before he was elected Blyth's Labour MP. He fears many of the region's young are migrating South even though the Government's trying to keep them here by pouring money into the region's New Deal programme for the unemployed. CAMPBELL Young people like my daughter, who moved down to the South East, obviously people like that are gonna move, because they're gonna say that's where everything's happening, that's where the money is and that's the place to be. And people are gonna drift down there, move down there to, to happier hunting grounds as they say, and the North East obviously is gonna be left to die, basically." DIGNAN: The happier hunting grounds of the South East are booming. And the proof is to be found in estate agent windows in Hertfordshire. But alarm bells are sounding at the Bank of England. The Bank's Monetary Policy Committee won't allow the South East's property boom and rising incomes to trigger runaway inflation. So the committee has been raising interest rates. Yet it's the North East, not the South East, which is paying the price. BELL When the Bank of England sets interest rates it's got to do that for the whole of the United Kingdom. Now the problem is if the boom's in the South, and interest rates go up here, the North doesn't want that and if that then puts the Exchange Rate up, they get a double whammy. And of course that's been going on for quite a few years now." DIGNAN: Regions like the North East still depend heavily on manufacturing. This foundry, Charles W Taylor, exports eighty per cent of its output, mainly for new gas fired power stations in Japan and America. The company has to keep one pace ahead of its rivals, according to its Managing Director. BRIAN PHILLIPS: We have invested one point seven million pounds in order to maintain our position against competitors. DIGNAN Their reward is to be hit by rising interest rates which, in turn, have kept the pound high. And that's a big problem for manufacturing companies that rely on exports. PHILLIPS: We believe that the interest rate rises are a reaction to the housing market in the south east of England. And this is completely at variance with the conditions that we have up here. And the interest rate rises that this has, that have been put in are maintaining the exchange rate at a much higher level than is comfortable for us and this is making life very difficult for us when we're serving world markets." DIGNAN: In St.Albans in Hertfordshire there's no shortage of work for carpenters and builders. A hundred and thirty-six houses are going up on this site and they'll fetch up to three hundred and forty thousand pounds each. To meet the South East's demand for housing, John Prescott's own advisers say more than a million homes should be built in the region. A decision is imminent. It could mean a huge increase in investment and jobs in the South. But could it be at the expense of the North East? That's the worry of Labour councillors like Ian Mearns, deputy leader of Gateshead Council. IAN MEARNS: One point one million houses have to come with other services, schools, hospitals, roads, sewers, water supplies, electricity. All that means an awful lot of public investment in the area. We're suffering from the effects of interest rate rises in this region and the answer is to throw more and more money at the system in the South East of England. That doesn't seem reasonable from our perspectives back in the North East. DIGNAN: There's growing resentment here in the North East of England over the Government's failure to meet the region's demand for a fairer deal on public spending. Labour MPs and councillors feel aggrieved, for example, about the budget for the new Regional Development Agency, which is investing in this project here in Gateshead. They believe the North East is hard done by on public expenditure, especially when they compare how much the Government spends on every man, woman and child in neighbouring Scotland. The Gateshead site is being cleared by the council to make way for a centre for music. The region's Labour MPs believe a lot more of these job-creating projects could go ahead if the North East was treated in the same way as Scotland. They want a review of the so-called Barnett Formula on public spending, established twenty years ago to help Scotland and Wales overcome their economic problems. JIM COUSINS: We have no interest at all in the north east in trying to drag expenditure in Scotland and Wales down. They have similar needs to us. They set the standard that we want to reach. They provide a benchmark for us. Our problem is we need a formula within England that meets our needs in the same way that the existing formula meets the needs of Scotland and Wales. CAMPBELL: Scotland per head gets more, and Wales per head gets more, because they were deprived areas many years ago, and I think the people of the North East are now saying, now we're deprived and we need a formula to, to bring us up to standard, the same way it happened in Scotland twenty years and Wales twenty years ago. DIGNAN: Gordon Brown says extra money is going into the region from the New Deal, Minimum Wage and Working Families Tax Credit. But the region's industrialists argue it's become clearer since Scotland got its Parliament the North East is losing out. PHILLIPS: Since Scotland had devolution we're now aware of the differential between the infrastructure support that they get compared with the north east. And the North East we believe has suffered quite badly in recent years from not getting the support from central Government that we would like to see. DIGNAN: John Prescott has responded with RDAs, regional development agencies. Every English region now has one. The North East's agency is developing sites along the Tyne with Gateshead Council. Whereas Scotland's better-funded agency is run by the elected Scottish Parliament, the policies of the English RDAs - and their budgets - are set by ministers in London. MEARNS: With a budget of about a hundred and fifty million pounds the regional development agency can do certain things. But a hundred and fifty million pounds in real economic terms is not an awful lot of teeth, is not an awful lot of bite. That's about half of the overall expenditure of a council the size of Gateshead. DIGNAN: For some years now support has been growing in the North East for an elected assembly to tackle economic regeneration. It's argued that if Scotland and Wales are allowed forms of self-government then why not here. It's very much what John Prescott favours. But Tony Blair is much less enthusiastic. MEARNS: Wales has a First Minister and a Secretary of State. Scotland has a First Minister and a Secretary of State. Northern Ireland eventually will have a First Minister. They will be powerful people. There will be a mayor, mayor of London. When those people talk to Government, Government are going to have to listen on behalf of their populations. We don't have that power in this region and being so distant from London it's extremely difficult for us to get our message across. COUSINS: We will be able to focus on the things that are really important for us that aren't necessarily so important in London and the south east. We also believe - obviously we do - that devolution will give us higher levels of total resources because it will give us more political influence, political influence that will match the political influence of Scotland and Wales. DIGNAN: To overcome decades of decline, a North East constitutional convention wants an elected assembly to control the development agency and Government spending on the region. Minister for the regions Hilary Armstrong wants a smaller, weaker body. Unlike her boss John Prescott, she's no fan of elected assemblies, even though polls here show a majority in favour of the idea. The Government is being warned not to ignore the region's demands. MEARNS Yes, the region is loyal to the Labour Party, has been loyal to the Labour Party and John Smith, before he died, pointed that, that out, that regions like the north east, like the Welsh and the Scots actually kept the Labour Party together. Now, I think an awful lot of Labour Party supporters who aren't party members are actually saying well look it's payback time here and I think we've got to actually listen to that because there is a real danger that traditional Labour Party supporters could be turned off to the Labour Party unless we start to deliver on these crucial questions. CAMPBELL: Don't take us for granted, because that could change. People can get a bit fed up with saying, with saying, look, you know we are being left behind, we are being treated as second class citizens, basically, and they can change and they may. And I would say to my Labour colleagues, in the Cabinet, be wary, and be very, very careful because you know, the great traditional voters of the North East returned a lot of Labour MPs, but don't take that for granted. DIGNAN: The Angel of the North stands over Gateshead. Traditionally, Labour has guarded the interests of this region. Now even Labour MPs and councillors say not enough is being done to meet the North East's demand for fairer treatment. Without it, they argue, the region could fall further behind the South East. And the North-South divide will grow wider.