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Northern Powerhouse offers business the greatest growth opportunity since Victorian era

The north could have growth aspirations on a scale not seen since the Victorian era of municipal development, according to a new IPPR North report – but only if key investments in the region are made in the upcoming Spending Review and beyond.

Analysing economic indicators and government policy, new research by the think tank shows the massive potential for businesses in the North West, North East and Yorkshire and Humber to grow and drive the nation’s prosperity and productivity.

It found:

  • The economy of the three northern regions is worth £289 billion: twice the size of Scotland’s, and bigger than all the devolved nations’ economies combined. If it were a national economy, the north of England would rank as tenth largest in the EU.
  • If the North was able to halve the gap between its own economic output per head and the national level, then its economy would be £34 billion (11.9 per cent) bigger.
  • The economies of the five biggest cities together grew by 38.8 per cent in the 10 years to 2013 – more than the UK outside London (38.3 per cent). Their populations grew by over half a million (5.4 per cent) in the 10 years to 2014, which is more than live in the city of Manchester.
  • The rate of job creation in the North equalled the national average (1.9 per cent), with some LEP areas soaring ahead: North Eastern (4.8 per cent), Leeds City Region (4.0 per cent) and York, North Yorkshire and East Riding (3.1 per cent) all saw job creation rates well above the national average.

But the prize – a rebalanced economy and a virtuous circle of investment, prosperity and wealth – can only be attained by the investment in the region’s infrastructure and drivers of growth. This means overcoming significant barriers which hold back the North’s potential, including low productivity, under investment in transport infrastructure spending, poor connectivity between its towns and cities and a weaker skills base (see Notes to Editors).

The forthcoming spending review must make a step change in commitment to the north of England. Otherwise, the agenda risks being added to a long list of failed ‘regional policies’. The report suggests the Northern Powerhouse is better placed than past initiatives to succeed, but that hinges on making investments in the Spending Review which can drive long-term increases in productivity of the North. This includes:

1. Investment: The Spending Review presents an opportunity for the government to make an up-front commitment to major transport infrastructure spending to boost business confidence, ahead of long-term transport spending commitments due in Control Period 6 (see Notes to Editors).

2. Business environment: Driving up productivity requires a positive business environment in which innovation and entrepreneurship can flourish: just 7.0 per cent of government R&D expenditure goes to the North. But the government needs to follow the lead of the market: if it invested the same proportion of its total research and development spending in the North as businesses do then it would spend £179 million more than it does now, or more than twice as much.

3. Leadership: Confident investment also requires strong leadership. Scope exists for greater business leadership in strategic planning at a pan-northern level. For example, Transport for the North should develop advisory boards to ensure businesses, alongside other stakeholders, are formally involved.

4. Urgency: For too long the north of England has been presented as lagging. Policies to narrow regional disparities have largely failed, too often the victims of political caprice in an over centralised nation. This government has opened a window of opportunity for devolution, and business must seize the chance. There is an urgent need more detail and more action to support the pan-northern vision – ‘one north, one economy’ – to ensure that business, public and civil sectors are galvanised to act now to sustain the momentum behind devolution and take advantage of this unprecedented window of opportunity.

Ed Cox, Director of IPPR North, said:

“The historical economic underperformance of the north of England is not natural, nor is it inevitable. We have seen past attempts at ‘regional policy’ fall by the wayside, but the Northern Powerhouse has momentum and has galvanised leaders in the North. But investment, leadership and urgency are the key ingredients for turning northern powerhouse rhetoric into national economic prosperity. The momentum is building, the benefits are great – the opportunity is there to be seized for Northern prosperity to create national prosperity.”

Contact:
Danny Wright – d.wright@ippr.org 07887 422789

Notes to Editors

Read From rhetoric to reality: a business agenda for the Northern Powerhouse here.

In March 2015, Network Rail set out a range of options for upgrades and new lines in the North, as part of the Government’s Northern Transport Strategy. These ranged from £15 billion to £60 billion, but no money has been commitment to these projects: 

https://www.gov.uk/government/news/revolutionary-plans-for-northern-transport-set-out

The report highlights the key barriers which hold back the north from its economic potential:

Productivity: The north of England continues to underperform relative to the world’s most successful economic regions. The north has grown more slowly than all but one EU country in the past 10 years and northern labour productivity is lagging, at £26.88 per hour compared to £30.05 per hour nationally.

Infrastructure: The north has seen underinvestment in transport for many years. Expenditure per head on transport capital in the North was £166 in 2013/14, which is half that in London (£332) and less than the average spend across UK regions (£189). Looking to the future, the national infrastructure pipeline shows that London and the South East will continue to swallow up the lion’s share of transport investment.

Connectivity: Underinvestment in transport connectivity means the north of England cannot behave as a single economy. For example, there are 40 per cent fewer commuter journeys between Leeds and Manchester than there should be, given their physical proximity. For the North to match London on transport infrastructure spend per head, £30 billion would have to be allocated to the region.

Skills: the skill base in the North is weaker: 52.4 per cent of the working-age population are qualified to level 3, compared to 56.5 per cent nationally. Projections suggest that in the 10 years to 2022 well over half of new jobs created in the North (57.9 per cent) will require a level 3 qualification or above, with only 5.9 per cent of new jobs requiring no qualifications at all.

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