Chris Haskins: We need radical action to get the North out of the mess that the South has dragged us into

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WE are living through the most prolonged period of global economic uncertainty since the Great Depression.

Four years after the collapse of Northern Rock which preceded the greatest post-war banking failure, the banking system is still not working properly. No one knows the true level of bad debts on their books.

The crisis precipitated a critical increase in the debts of many Western sovereign states, including the United States and Britain.

The creditworthiness of several smaller countries like Greece, Ireland and Portugal so spooked potential lenders, including the already cash-stripped banks, that the other members of the eurozone are attempting to bail them out and halt any contagious effect on other countries like Spain and Italy.

Even the creditworthiness of the great United States has been questioned as the politicians struggle to agree on remedial action.

Ironically this crisis was created by consumers and certain governments spending too much and the banks being prepared to take massive risks with their balance sheets by lending too much.

Yet, as Larry Sumner, a former US Treasury boss, commented recently, the solution to the crisis depends on consumers spending more and bankers lending more!

So we are in a mess, And nowhere more so than in the North of England.

Compared with the South, we entered into this crisis in a frail condition, bedevilled by areas of chronic unemployment, and the collapse of our main traditional industries, like cotton in Lancashire, textiles and coal.

The economy had been heavily reliant on high public expenditure. Because of the crisis, the Government was forced to severely cut its spending, though some would argue that the cuts are excessive, for example the NHS cost base must in real terms be reduced by four per cent per annum for four years, compared with the original requirements.

This alone will severely damage Yorkshire, with an above average share of the health budget.

Inevitably, against this background, prospects in the North look grim. Ironically, London, from which many of the perpetrators of the catastrophe operated, is recovering, with property values rising again and unemployment slightly declining (the opposite is the case in the North).

My blueprint for action over this is radical because radical action is needed.

Firstly, I believe that many elements of the Yorkshire Forward economic strategy should be re-established by the coalition government. (I was a Board member of Yorkshire Forward for 10 years).

Our manufacturing base must be underpinned by the state and not demolished, as appears to have been the case, especially in South Yorkshire. The renaissance programme was highly successful, in giving towns like Barnsley and Bridlington a necessary facelift and creating jobs. And providing a regional stimulus to higher education – we have some of the finest universities in the country – was proving effective.

A regional programme for vocational education and training is badly needed, in order to give young people a better opportunity in life and to provide businesses with the skills they so seriously lack, compared especially with Germany.

Second, there are already large numbers of relatively low skilled jobs in our economy, especially in one of the few growth areas – food. Yet these jobs in recent years have had to be filled, to a large extent, by migrant workers from Eastern Europe whose commitment, reliability and productivity far exceed what the domestic labour force can provide.

This is because of generations of joblessness, and a cultural dependence on the state has resulted in a distaste for arduous work and vast numbers of “unemployables”. Successive governments have wrestled with this profound inner-city problem with little success. Work and Pensions Secretary Iain Duncan Smith’s approach should be endorsed and financed.

Third, the issue of a North-South divide has troubled governments for nearly 40 years, and despite valiant efforts to reverse the drift southward, the trend has continued. A more radical approach is needed, across a number of fronts, because of forecast trends in the UK’s population, which is expected to increase by 20 per cent or 10 million people by 2040. This will be the driving element in our national economic growth, but clearly the South East will be unable to absorb all these extra people.

Short term, while some chunks of public administration have moved away from London, the balance remains far too heavily weighted in favour of the South East. In order to make such transfers attractive, the unions’ stubborn support for national wage bargaining should be challenged because it is inflationary and there is little economic incentive for employers, especially the Government to relocate away from the South East. The proposed high-speed train links will also reduce the need to locate in the South East.

Finally, I believe the strategy should be based on the principle that city regions should drive our economies, as is the case in many other countries like Germany, (with Cologne, Frankfurt, Hamburg etc) or the United States (with Chicago, Atlanta, Denver etc).

Yorkshire could have four city regions with their distinctive identities and attractions; Leeds, Sheffield, Hull and (less convincingly) York.

These cities should be developed as hubs for economic activity and take on the role which, I believe, Yorkshire Forward carried out with such success. Leeds has established itself as the region’s financial centre.

But, while these initiatives would go some way towards redressing the inequality that exists between the North and the South, they will be of little value as long as the malaise that still envelops the economies of the United Kingdom, the eurozone and United States persists.

I see little prospect of much change during the next 18 months. Investors and consumers remain fearful and uncertain, and no one is able to convince them as President Roosevelt did 75 years ago that “there is nothing to fear but fear itself”.

By 2013. George Osborne’s strategy will either be working or else, the eurozone (assuming it stays largely intact) will have new rules on corporate and sovereign governance in place, and the American presidential election will be over. In the meantime, hold on to your hats.

Lord Haskins is an East Yorkshire farmer, businessman and former chairman of the Better Regulation Task Force.