Federal states ‘the answer to regional recovery’

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THE only way to reverse the economic decline of the UK regions is to introduce federal states with the power to raise their own finances, a leading academic has claimed.

Speaking at Leeds Metropolitan University, Professor Jeff Henderson said city regions and combined authorities will fail to deliver the radical economic restructuring required to rejuvenate the North of England because they are beholden to Westminster for funding.

He also said taxpayer-owned Royal Bank of Scotland should be broken up into a series of regional banks with venture capital arms to support new product development and small and medium-sized businesses with growth potential.

Prof Henderson, an expert in economic development, claimed that the economic decline of the English regions, Scotland, Wales and Northern Ireland is intimately linked to the over-centralisation of the British state in London.

He compared the capital to the Indonesian upas tree: a plant whose leaves produce a toxic sap that kills off anything that tries to grow beneath its branches.

Prof Henderson supported his case with figures showing how London attracts the lion’s share of all public spending at the expense of the regions.

In economic affairs, London receives 43 per cent more funding than the North; in transport, the capital gets 61 per cent more than the North, despite having 70 per cent fewer people.

He cited figures showing that 66 per cent of future transport funding is going to London, versus 0.2 per cent in the North East, 2.2 per cent in the North West and 3.6 per cent in Yorkshire. “Transport is rather important for questions of economic rejuvenation,” he said.

In arts funding, Londoners receive £20 per head, compared to £3.60 per head for those in the rest of England; the Department for Culture Media and Sport spent £49 per head in London compared to £1 per head for those elsewhere, he added.

Prof Henderson said the origins of the problem go a long way back to the heyday of the British Empire, when “gentlemanly capitalists” in London benefited from financial and commercial speculation in overseas territories.

This led to a concentration of the economic, political and cultural elite in the capital who have managed to shape economic policy to protect their own interests as globalisation replaced the Empire; consequently, speculative financial services triumphed over productive industry, he said.

Prof Henderson highlighted the lack of Government support for industry with the example of graphene, the so-called miracle material invented by academics at Manchester University who won the Nobel prize for their efforts.

The Government has provided £60m in funding to develop applications for graphene, in contrast to Samsung, which has invested £600m in looking at purely mobile phone applications for graphene, he said. He contrasted the number of patents registered relating to graphene: China has 2,200, the United States 1,700, South Korea 1,200 and the UK just 50.

He described this as “the old British disease” of inventing something great but failing to convert it into commercial success. “From radio to jet engines to commercial aircraft to computers, it seems graphene is going the same way,” he said.

Summing up, Prof Henderson said the solution is not yet more tinkering with local government structure and economic agencies.

“The city regions are not likely to deliver the radical economic restructuring that we need in the North of England nor are the combined authorities and the rest of these plans coming out,” he added.

“They are not likely to impact on economic rejuvenation in the North and other regions... not least because those types of agencies and authorities do not have the capacity to generate their own finance.

“Without that they remain beholden on central government, on bargaining with central government for the funds they need to help drive economic growth.”

He said state financial autonomy is central to the possibilities of economic rejuvenation.

Prof Henderson, who grew up in Durham and Yorkshire, is Professor of International Development at Bristol University.

He is working with the Hannah Mitchell Foundation, a campaign for democratic government in the North of England.

Twitter: @bernardginns