Tom Hunt and Scott Lavery: Why North is vulnerable to Brexit vote

EU funding has helped regenerate Sheffield and South Yorkshire.
EU funding has helped regenerate Sheffield and South Yorkshire.
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SOME of the most significant recent developments in British politics – devolution to English city regions and the Northern Powerhouse agenda, the Scottish independence referendum, and attempts to “rebalance” the economy away from London and the South East – have all had one thing in common.

They all reflect a growing awareness that the UK is not one single entity, but a diverse set of regions and devolved nations with vastly different and unequal economies. However, throughout the EU referendum campaign, and debates about the economic impacts of Britain’s current EU membership, a regional focus has been strangely missing.

Both Brexiteers and Remainers proclaim the benefits and risks for the UK if we vote to stay in or leave the EU, but the claims and counter-claims have tended to focus on the UK as a whole. What about the regional impact?

Our report has examined the relationship between the UK’s regions and the EU, with a particular focus on the North of England. To do this we looked at the different trade relationships that regions have with the EU, focusing on manufacturing exports and also the regional distribution of structural and investment funds from the EU.

Analysing manufacturing exports shows how the UK’s regions have significantly different relationships with the EU. In 2015 just under half of Yorkshire’s manufactured goods exports (47 per cent) went to the EU. Some regions export more to EU countries, notably the North East, South West and Northern Ireland, but Yorkshire is more dependent on EU goods trade than London, Scotland, Wales and the Midlands regions.

The UK’s poorer regions – including those in the North – are therefore generally more dependent on demand for goods from the EU single market than more affluent regions. This is where a Brexit could present a real danger to the North. If Britain left the EU single market, it could face new tariffs on its goods exports.

However, we shouldn’t ignore that the economic status quo isn’t working for poorer regions. Brexit could, of course, lead to greater prosperity for these regions if a stronger trading relationship with the rest of the world is developed, but there’s no certainty about how this could take place, or over what timeframe.

Yorkshire is central to the Northern Powerhouse agenda which aims to address regional imbalances partly through boosting the capacity of Northern manufacturers. If a Brexit were to occur, what implications would this have?

Further questions arise when we look at how different parts of the UK benefit from EU structural funding. This is investment which supports regional economic development and which helps to create new jobs, reskill workers and support the development of a low carbon economy.

Across the UK, poorer areas such as Wales, the North of England and South West receive a larger proportion of these funds than richer areas. For example, between 2014 and 2020 Yorkshire will receive over £600m, which is £114 per person whilst the South East will receive just £25 per person.

The impact of EU regional development funds in Yorkshire is considerable. Since 2007, it is estimated that such funds have created over 20,000 new jobs and nearly 3,000 new businesses in the region. As one of the UK’s poorest areas, South Yorkshire received over £800m from the EU during the 2000s to help boost its economic performance and overcome the legacies of industrial decline following the demise of coal and mass steel production.

The prospect of a Brexit raises big questions about the future of structural funds, however. If Britain votes to leave, will the lost funds be matched by the UK government? Out campaigners say leaving the EU will mean more money will be available to invest in the regions. However, in the context of ongoing spending cuts, any future government would need to find money for regional aid and this isn’t guaranteed.

Our analysis of manufacturing exports and structural funding suggests that a “leave” vote 
would most likely cause a greater degree of economic uncertainty and short-term disruption for poorer regions – like Yorkshire and the North – than for richer regions.

The big questions that surround future regional goods trade with the EU and receipt of structural funds are about more than statistics, they will have a real effect on jobs, pay and livelihoods, and the performance of regional economies.

Both sides of the referendum campaign need to address this uncertainty and provide more clarity and answers for voters about the regional implications of staying in or leaving the EU. Yorkshire is famed for its plain speaking. In these final few weeks before we vote on June 23, we could do with a lot more of it.

Tom Hunt and Scott Lavery, from Sheffield Political Economy Research Institute, are co-authors of a report on the impact of a Brexit vote on the UK’s poorer regions.