BRIC star says bold schemes needed to rebalance UK economy

Jim O'Neill
Jim O'Neill
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WHEN Jim O’Neill left Goldman Sachs, the man who helped shape our understanding of the changing global economy was not short of job offers.

But he wanted to do something different; he wanted a role that might have some influence.

The leading economist admitted he felt nervous at becoming chairman of the City Growth Commission because of so many past initiatives to support regional growth that resulted in subsidies.

Mr O’Neill, who coined the BRIC acronym to describe the growth markets in Brazil, Russia, India and China, said the commission is trying to be bold in its recommendations to help Britain’s regional cities thrive and complement London’s economic success.

The commission, launched by the RSA think tank, will head to Sheffield next week to launch its second report, which concludes that economic growth is best supported by giving local administrations the power to control government spending on skills and set local labour market policy.

Commissioners have travelled the country gathering evidence and in the North East they learned of fears that the only way Hitachi will be able to find enough engineers for its new train manufacturing plant will be to poach staff from neighbouring carmaker Nissan.

“Nobody in Whitehall can have an appropriate nationwide policy that can deal with that,” said Mr O’Neill.

The former chief economist of Goldman Sachs welcomed this week’s speech by George Osborne in which the Chancellor called for a debate about greater transport connectivity between Leeds and Manchester - dubbed HS3 - to create a “northern economic powerhouse”.

Mr O’Neill said the second phase of HS2, the £50bn high-speed rail link between London and the North, is much more important than the first because it cuts travel time between cities in the Midlands and the North, “whereas getting everybody from northern cities to London somewhat faster than they already do is neither here nor there because people can get to London quickly anyhow”.

During the commission’s first hearing in Manchester in February, Mr O’Neill, “a proud Mancunian”, suggested that Manchester and Liverpool should consider thinking of themselves as one larger city called ‘Manpool’.

He said yesterday: “In the spirit of the Chancellor’s speech on Monday, should we be thinking of Man-Sheff-Leeds-Pool? That’s the kind of scale we will have to think about if we really want to change these things.”

This would bring together an agglomeration of people the same size as London and with improved transport connectivity - “what these cities need between them is the equivalent of the tube system” - comes a host of different virtuous benefits, he said.

“I call it looking at the Joneses. It is at the heart of why much of global growth is driven in urban areas,” he added.

“I have lived in London for virtually all my professional life and you see it; just the mixing with lots of dynamic smart people, you get ideas which you can effectively steal or get influenced by.”

He does not know why successive governments have failed to recognise that greater transport connectivity would be good for the North and believes that concerns over Scottish independence and mainstream parties being seen as out of touch could be changing the political mood towards bigger schemes.

Mr O’Neill described himself a realist when it comes to the difficulty of successfully rebalancing the UK economy away from London and financial services, noting “the very powerful underlying long-term forces”.

“However, having that state of mind led us to believing that we needed to therefore think of pretty bold things,” he added.

London is the BRIC capital of the world

Jim O’Neill does not work on the basis of London as a bubble, but rather the BRIC capital of the world, a reference to his famous acronym for the growth markets of Brazil, Russia, India and China.

He said: “The really strong price influences on London are related to overseas purchases.

“In that context... one has to think of central London as part of some sort of global wealth market.”

He added: “Efforts to control the London property market with conventional British measures might not succeed so limits on borrowing to income, like Bank of England Governor Mark Carney said, I don’t think are going to relevant to foreign buyers.”

If the central London housing market were to turn down, it would not be devastating to the national recovery, said Mr O’Neill.