Patrick Diamond: Five-point plan to bring fairer balance to our economy
THE growing regional imbalances in the British economy over the last 30 years have been much debated. But they are growing ever starker, having worsened since the financial crisis in 2008-9.
The underlying causes of the divide between the South East and the North of England in growth, employment and living standards are wide-ranging, but reflect the structurally dysfunctional nature of the UK economy.
An official report for the Blair government published in 2001 inferred that the North-South divide was a fiction: what mattered were the differences within regions – for example between ‘core’ cities such as Leeds and ‘peripheral’ towns surrounding it, rather than the differences between the regions of Britain.
While providing a media talking-point, such claims obscured the fact that significant regional inequalities have continued resulting from wider imbalances in the United Kingdom economy – and the response of governments of all ideological complexions, then and now, has frankly been inadequate.
As the British economy has become less orientated towards productive investment and more weighted towards consuming goods and services - shifting away from manufacturing industry towards financial services – so regional inequality has accelerated.
The manufacturing sector in the North has contracted to the point where living standards can no longer be protected, requiring fiscal transfers from Southern England. As the think-tank Oxford Economics think-tank concludes: “This is a drain on public expenditure in the South and contributes to an unbalanced Britain.”
The regional policy adopted by the previous Labour government was not bold enough to counter the underlying trend in the balance of economic activity towards regions where financial services are the dominant activity.
Private sector growth in Yorkshire and Humberside, the North West and North East regions was significantly less impressive.
Moreover, the 2008-9 crash destroyed many of the pillars of regional economic growth that were evident previously. The dramatic contraction of the financial sector led to the loss of many ‘call centre’ banking jobs. Moreover, the cuts in public spending after 2010 led to declining employment and real wages in the public sector, having a disproportionate impact in the North of England.
Coalition government ministers argue that jobs in the public sector are being replaced by jobs in the private sector, but the evidence to support this claim is mixed at best. The latest figures show overall employment in the UK is up 177,000, but growth in the three Northern regions has only been 13,000. Across Britain, unemployment has fallen by 48,000 but in the North, unemployment has actually risen by 2,000.
Researchers from the University of Manchester have shown the extent to which regional income and output disparities have grown in the United Kingdom since 1979: the most weakly performing regions have each slipped up to ten points on measures of Gross Value Added (GVA) compared to London.
They have concluded that “all three of these declining regions now have output per capita that is less than half that of London, and if we extrapolate past trends, their per capita output could be around one-third that of the London level by 2029”. The North East, North West, and Yorkshire and Humberside have slipped back relative to London and the South East between 1995 and 2008 – and they are set to be left even further behind.
This has prompted an important debate about how to make regional economic growth outside London and the South East more sustainable, so as not to attenuate the strategic advantages already enjoyed by southern England.
The most powerful symbol of an imbalanced economy is geographic and spatial inequality; particular regions become congested and over-populated with inadequate infrastructure, while other regions continue to decline in relative terms with far higher levels of worklessness and ‘supplicant’ populations at risk of permanent marginalisation.
If the regional divide gets worse, this would represent an ominous future for Britain’s economy and society. Radical action is needed around five key strategic priorities:
• First, upgrade regional infrastructure through capital investment, allowing regional airports in Leeds/Bradford, Manchester, and Newcastle to expand where capacity permits.
• Second, forge a system of local banking building on the German ‘Sparkaassen’ model that directs capital towards local businesses that need credit to expand and grow.
• Third, use public procurement to help British companies and promote SMEs, especially start-ups.
• Fourth, build local economies from the bottom-up, giving local authorities additional powers to borrow and invest.
• Finally, create a ‘super-ministry’ with a remit to devolve economic power away from Whitehall.
Key public institutions ought to be dispersed outside London, including cultural amenities such as the Royal Opera House and the British Museum.
As a symbol of the renewed commitment to political decentralisation, half the House of Lords’ parliamentary sittings each year should take place in the fine civic buildings which populate our northern cities rather than London. That really would shake up the establishment.
• Dr Patrick Diamond is a lecturer in public policy at Queen Mary, University of London. He is a former adviser to Tony Blair.
Graeme Henderson: Commissions galore, but still we wait for Westminster to act
ALL the major political parties have talked up the need to rebalance the UK economy but actions sadly have so far fallen short of the rhetoric.
It is why a City Growth Commission has been recently launched with the aim of reviving England’s major cities.
Nonetheless, as yet another commission gets under way vowing to address the task of rebalancing, it’s fair to ask how many commissions and how much evidence on its benefits we need before Government takes the steps needed to achieve it.
Can this commission finally make Westminster listen? It will have its work cut out.
In the last 12 months, the North of England has not been short of reports championing regional cities and the need to rebalance our national economy. They have all broadly come to the same conclusions – the need to focus on infrastructure, skills and devolution rather than incentives and tax breaks for business.
• The Adonis Commission in the North East has advocated a “skills surge”.
• Lord Heseltine has pushed for a single pot targeted at economic growth in the region of £70bn to be devolved to local areas.
• Liverpool John Moores University’s Michael Parkinson has highlighted the need for years of under-investment in regional cities to be remedied.
In fact, IPPR North’s own Northern Economic Futures Commission has championed all three of these policy prescriptions.
Investment in transport, skills and housing can be made to work together locally in a way that simply isn’t possible at a national level. Transferring powers and resources to cities and their surrounding areas also allows government, business and communities to address local challenges as a partnership, providing for more innovative and responsive policy making.
The UK is far more centralised in its governance that any of its major competitors. Equally, local government seldom benefits financially from being more efficient with additional savings and revenue going in their entirety to the UK exchequer.
Despite the plethora of evidence and strategies on how to boost regions like Yorkshire and the Humber, such regions continue to be overlooked. The consequence of this is that regional disparities continue to widen.
Hull, for example, has the highest level of Jobseeker’s Allowance claimants in the country. This impacts not just jobs but, as an indirect consequence, many of the most important quality of life factors.
People living in the most deprived areas on average die seven years earlier than those in the most wealthy areas. Caught between London and South East where the economic downturn has given way to a new housing boom, and Scotland and Wales getting more powerful through ongoing devolution, commentators have even started referring to the North of England as the “Forgotten North”.
Northern councils have been disproportionately hit by recent cuts to funding from the government. Even the Government’s £700m grant scheme set up to boost activity in needy areas has benefited London and the South East far more than deprived areas in the North. How do we get Westminster to care more about places like Yorkshire?
During the last party conference season, we asked at the Labour conference whether Labour took the North for granted and it was clear that most thought it did. At Conservative party conference our question was whether the Tories got the North. The resounding response was that their leaders didn’t. Interestingly, northern Labour members wanted more power devolved to local areas, while northern Tories hoped for more emphasis on the living wage.
This perception of the North being neglected by Westminster is worrying. With George Osborne, Nick Clegg, William Hague, Ed Balls and Ed Miliband all representing northern constituencies this shouldn’t be the case, albeit each of them are originally from the South.
New research by the Inter-generational Foundation suggests that this neglect has translated into northerners disengaging from national politics. It found that in London and the South East one and a half times the proportion of young people voted in recent national elections compared to in the Yorkshire and the Humber.
More fundamentally, Westminster and Whitehall remain convinced that London will power the recovery and secure the UK’s economic prowess for the foreseeable future. As Mark Ferguson, the northern-born Labour List editor has noted, the Westminster bubble is “incredibly unkind to those who swim against the tide and attempt to warn against received wisdom”.
How do we persuade politicians to move beyond the rhetoric of rebalancing to resounding action? The most important task the City Growth Commission needs to address is perhaps less what the cities need and more how to make Westminster listen. We have the blueprints and the business case but if Westminster doesn’t listen not much will change.
• Graeme Henderson is a senior research fellow at IPPR North. He tweets as @GraemeAH