Growing the UK economy? Just look North

Mervyn King has recently been encouraging pessimistic city analysts to get out more. He wants them to experience the more optimistic economic mood outside London. The economic prospects of the northern regions are now more positive than for decades.

This is more than just a short-term phenomena: the underlying structural change in the economy of the North has also been impressive. Manchester, Leeds, Newcastle, Sheffield and Liverpool have all outpaced national economic growth over recent years, and are making a successful transition towards a knowledge-based economy.

But tourists from the Square Mile should also understand that the renaissance of the North’s economy is still unfinished business. Partly because of the economic weight of London, the performance of the North as a whole has not yet begun to close the gap on the rest of the UK.

Some of the less well-connected areas have failed to keep up. And the North still underperforms on most measures of relative performance ­— deprivation, employment, skills, enterprise and productivity. As Michael Parkinson’s work on the State of the Cities illustrates clearly, the major English cities still rank low in the European league table.

So what does a progressive economic agenda for the North look like? And what are the prospects that recent developments in government policy will make a decisive difference?

First, let’s recognise the limits of the simplistic and static dialogue of a North-South divide. The English regions are increasingly interdependent, within and between themselves and internationally, as well as with London. Proximity to a successful world city is an asset for the North. A recent study by Alan Harding for the Northern Way shows a complex process of economic agglomeration taking place, with those cities best able to exploit critical mass and connectivity benefiting most from economic change.

The policy debate is also becoming more sophisticated. Over the years successive governments have been pretty arbitrary about which functions to devolve, which to exercise on an arms-length basis, and which to keep tight hold off. But there is an increasing need to understand the cumulative and differential impact of different policies in different places.

Looking at economic policy from the regional and local perspective often delivers a very different viewpoint from the lofty heights of a Whitehall department.

It took two and a half years to recover from the shock of a 78 per cent No vote in the North East Assembly referendum, and a certain amount of debate and confusion in the intervening years — particularly over the government’s commitment or otherwise to elected city-region mayors. But when Gordon Brown’s Treasury got a grip, the government unveiled Plan B: the cumbersomely-titled ‘Sub-National Review of Economic Development and Regeneration’ (SNR).

The development of the SNR was in many ways a model for effective policy making; a high degree of engagement with local areas, openness to institutional change, transparent and meaningful consultation, and an approach that recognised local distinctiveness.

The outcome provides a much clearer allocation of responsibility between national government, regional institutions and local authorities, and gives a further push towards devolved decision-making.

Out of a debate that has often been contentious and fractious, the SNR has secured a strong degree of consensus. Local government and Regional Development Agencies (RDAs) both see an expanded role. RDAs now have the heavy responsibility of securing agreement to an Integrated Regional Strategy — for the first time bringing together key decisions on economic and spatial planning, housing, transport and environmental protection, with the promise of greater influence over national programmes.

Local authorities take on an explicit responsibility for the economic development of their areas, but are encouraged to deliver that on a cross-border basis and in close partnership with their RDAs. Particular emphasis is placed on ‘city-regions’; bringing together city councils and their surrounding boroughs and towns to reflect the realities of the economy, rather than arbitrary administrative boundaries.

The tendency of local government to look inward is being challenged like never before, with the most ambitious local leaders playing a role across a wider geography. New institutional arrangements are being developed: city-region leadership boards, shared services, economic development companies, multi-area agreements, joint analysis units, regional funding allocations, and agreements between RDAs and groups of local authorities to prioritise regeneration funding.

Over time, we should also see new Integrated Transport Authorities, able to take on powerful new roles across all modes of transport, with a stronger focus on congestion-reduction.

The appointment of regional ministers, and the prospect of regional select committees, provides a push towards better spatial-awareness in Whitehall, as well as a strengthening of government’s visibility in the regions.

Exciting times for regional policy-wonks. But, despite the economic focus, the business community have largely been left on the sidelines of the debate, regarding a focus on the pattern of public sector institutions as, at best, irrelevant to their needs. For evidence of their distrust of local government structures, hear the business reaction to the prospect of a re-localisation of the business rates. In many areas there simply isn’t the confidence that locally-raised business taxes will be put to best use on local business priorities.

Of course institutions matter, and we shouldn’t apologise too quickly for focusing on getting them right. But ultimately it’s not the institutional structure that delivers change, it’s the decisions of market participants — individuals and businesses, operating in the context of public sector decisions that can facilitate their success, or as often hold it back.

The SNR sets a positive framework for regional policy, which the Northern cities and regions are better placed to respond to than in other parts of the country. But this won’t in itself deliver a relative boost of sufficient magnitude to reduce the economic gap between North and South.

In the meantime the serious effort is focused down South, with the massive regeneration activity associated with the 2012 Olympics and Thames Gateway, the need to expand housing supply across the South East, the £16bn investment in the London Crossrail project, and the expansion of Heathrow.

Perhaps we are seeing the effect of two parallel regional policies: the facilitative, devolutionary, and spatially-neutral approach of the SNR, alongside the active promotion of growth in the London super-region.

So where does this leave the North of England? The Northern Way is a coalition of the Northern RDAs, working together with the northern city-regions, local government from the three main parties, universities and business leaders, to promote the economic growth of the North.

We are seeking to redefine old perceptions of the North-South divide, with greater optimism about the ability of the North of England to contribute to national prosperity. We want to support this ambition with a stronger analysis of the key economic challenges facing the North, securing agreement to the transformational policy changes, and supporting pan-regional priorities and joint-working. For us, the SNR is right and necessary, but certainly not sufficient.

The Northern Way is currently consulting on a three-year policy research programme, with the explicit objective of enhancing the weight placed on the interests of the North in economic policymaking.

Transport has had a particular focus. More investment in better North-South and East-West rail connections, and to the ports and airports, would benefit the UK as a whole, and will rapidly become more urgent as the trend continues of rail use in the North rising more quickly than nationally.

In the short run our priority is to resolve congestion in the rail network around Manchester, which as well as affecting commuters creates barriers to inter-city rail links across the wider North, for freight as well as passengers.

And, while road pricing appears inevitable if we’re to avoid gridlock in the longer-term, there are short-run bottlenecks in the motorway network which are in danger of constraining economic growth before we get there, for example on the M62, or the A1 through Newcastle.

In a new economy where critical mass is becoming increasingly important, we need to challenge the Northern universities to work together more effectively with each other and with business. We want to address perceptions that the national approach to innovation, science and technology needs to focus on centres of excellence in the South by nurturing the considerable assets we have embedded within the North of England.

And, to counter the tendency to seek only public sector solutions, the Northern Way recently launched a Private Investment Commission, to be chaired by Sir James Crosby, and with members drawn exclusively from the private sector. Their aim is to address the remaining barriers to private investment in the North.

Why is it that Northern businesses appear to face a disproportionate financing gap, why does regeneration still require a sustained deployment of public resources, why do

City institutions seem to look to global markets more enthusiastically than to opportunities in their own backyard?

The prize is significant. A more balanced UK economy will help the country as a whole better address economic challenges as diverse as housing affordability, structural change, worklessness and transport congestion. And ultimately make Mervyn King’s job a lot easier.

 Andrew Lewis, Director of Nothern Way.