Luke Raikes: Invest in the North and the whole country will reap rewards

Commuters arrive for work in Sheffield - but could more be done for northern cities?
Commuters arrive for work in Sheffield - but could more be done for northern cities?
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A hundred years ago the North was one of the most prosperous regions in Europe. It has taken a century of economic shocks and industrial change to bring us to where we are today, with London’s economy so dominant.

Central government policy is a major cause of this problem. Regions similar to the North in other countries have faced similar headwinds – parts of France, Germany and the Netherlands have a lot in common with us. But these countries have regional governments which have intervened to modernise their economies and invest in new infrastructure.

In the UK central government has fuelled the economy in London and the south east with ever-increasing investment – in the capital’s transport infrastructure and in the innovation resources of the Cambridge-Oxford-London ‘golden triangle’ for example.

We often focus on the downsides this has for the North, but this situation creates problems in all regions. Since 2010 London has generated a million additional jobs – three times the rate of jobs growth in the North. But in the process, house prices have been ramped up to 13 times average earnings for first-time buyers.

The problem is therefore as real to someone looking for a house in London, as it is for someone looking for a job in the North of England. Something is very wrong with the way our different regions function and interact with one-another – and given London’s house prices also generate the country’s highest poverty rates, it is more complicated than a rich London and a poor North.

This is an old problem, but it has a new urgency as we approach the Brexit deadline. A ‘no-deal’ Brexit could be highly problematic for manufacturers in the North as their supply chains are cut by a new and complicated border. This will have knock-on effects on other businesses and local communities.

Meanwhile London’s economy is far better placed to adapt. Our regional inequalities could get much worse very quickly. IPPR’s Commission on Economic Justice yesterday proposed an ‘inclusive growth fund’ of £10 billion over five years to replace the current levels of EU investment in the regions. It would be used to reduce the current regional inequalities we have by investing in the potential of the regions outside of London.

This funding should be administered in the regions and accountable to local politicians, not Whitehall. Central government has shown itself incapable of recognising the value of people, places and economic assets based outside London. Local decisions tend to be better decisions for people and their economy, and the UK is unique in holding so much power centrally. If this funding were devolved, then it is much more likely to be put to good use transforming all regional economies and the country as a whole.

As the alarming details of the contingency plans for a ‘no deal’ Brexit emerge, the case becomes even stronger for investment in the North. The UK could soon have regional divides comparable to those seen in Germany before its reunification – in terms of life chances the two situations are already comparable. But incredibly, almost 30 years after reunification, many parts of East Germany are actually more productive than the North of England. There are clearly many differences between the two situations, but it does show that regional challenges of significant scale can be overcome if there is a clear plan.

The significant improvements in East Germany did come with a price tag. A major driver behind these regions catching up is the €17 billion a year of investment which has been funded by the ‘solidarity surcharge’ – a small addition to some of Germany’s federal taxes such as income tax and corporation tax (nudging them up by roughly a percentage point). Other countries have used similar charges as funding for infrastructure after a crisis. If this were rolled into the inclusive growth fund and guaranteed over long timeframes, then big, transformative programmes of investment would be possible.

This investment would not go to waste. Today local leaders are coming together to speak with one voice at The Convention of the North. They will have a strong evidence base to argue for more for investment in the North’s economy.

The North has an abundance of viable opportunities for infrastructure investment. What these schemes often lack is a reliable funding stream to pay back the upfront costs, which these funds could provide.

The widening divisions in our country won’t be bridged by investment alone. But investment outside of London, and especially in the North, is a necessary first step. The Commission’s report 
offers an opportunity for politicians of all parties to get behind a plan for regional renewal.

Luke Raikes is a senior research fellow at the think tank IPPR North