Business development · 6 October 2015

Northern Powerhouse falters as economic gap between London and the North of England grows

London's economy is predicted to grow by 27 per cent in real terms between 2015 and 2025 to just under £450bn
London’s economy is predicted to grow by 27 per cent in real terms between 2015 and 2025 to just under £450bn

The chancellor has announced the imminent establishment of a “Northern Powerhouse” as part of the Conservatives’ one-nation policy, but a new report has found that more must be done if rebalancing the UK economy is to be successful.

George Osborne feels if the connectivity between cities such as Manchester, Liverpool, Hull, Leeds and Sheffield is established, with better transport links, it will help to push growth outside of London, helping the UK as a whole.

However, law firm Irwin Mitchell and the think-tank Centre for Economic & Business Research (Cebr) have raised concerns about the government’s wealth-spreading agenda in a study – with northern businesses in particular underwhelmed by measures taken so far.

Using a city-by-city measurement of current and projected economic strength, the capital’s economy is predicted to grow by 27 per cent in real terms between 2015 and 2025 to just under £450bn. Meanwhile, the combined rate of growth across the North West, North East and Yorkshire & Humber is expected to be a little over 14 per cent leaving output in these regions over £110bn lower than London’s in 2025.

London’s projected growth in employment was 11.1 per cent, while Birmingham’s was 9.3 per cent, Greater Manchester 8.6 per cent, Liverpool at 8.1 per cent, Leeds 7.6 per cent and Sheffield 6.9 per cent.

Niall Baker, CEO of Irwin Mitchell’s business legal services division, said: “Although it is good news that London and the South East will continue to prosper, it’s clear that a radical rethink of the government’s wealth spreading agenda is required.”

He said investment in infrastructure was “one part of the mix”, and called on the government to “listen to the voice of business and employ a range of policies tailored to different regions, rather than assuming that a one size fits all approach will work”.

Using analysis and economic modelling from the latest available ONS data for 2013, the report showed that for the end of June 2015, four of the five fastest growing cities were in the South of England.

Additionally, while each city economy had moved into recovery over the past year, the study showed that not all cities had yet managed to recover to their pre-financial crisis levels of economic output. Aside from a couple of exceptions, the underperforming economies were concentrated in the North of England and devolved nations of Wales and Northern Ireland.

The report suggested that for the next ten years, the fastest increases in real GVA growth would be seen in Southern cities, with the likes of Cambridge, Oxford and Milton Keynes continuing to outpace Hull, Swansea and Middlesbrough.

Irwin Mitchell commissioned an additional YouGov survey of 1,000 businesses to get their perspective on which policy measures they thought would be the best way to help regional economic growth. Some 31 per cent said the government had taken the right steps to address economic growth in the region they operated in, while 38 per cent said more could be done.

More notably, the regional breakdown of the results reflected a net balance of northern firms disagreed that the Conservatives were doing enough to support regional economic development.

Osborne has just claimed the beginning of “the devolution revolution” at the party conference, with councils to keep business rates, though this has had a lukewarm response from businesses. Nearly half of the firms surveyed thought greater devolution of powers could help economic growth in their region and this was highest in the North of England, where 59 per cent of businesses agreeing.

As a result of the report, Cebr has recommended a series of policy measures to help narrow regional disparity in economic performance:

(1) Further devolution of policies to cities, regions and local authorities

(2) Rethinking transport policy with a  greater emphasis on local rail and roads

(3) Introducing a regional Living Wage

(4) Devolving business rates and considering a land value tax

(5) Tackling housing shortages

(6) The introduction of tax competition across regions

(7) Greater involvement of businesses in local education policy

(8) The establishment of more industry clusters/enterprise zones around UK universities

(9) The devolution of Air Passenger Duty (APD) in England

Image: Shutterstock

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ABOUT THE EXPERT

Rebecca is a reporter for Business Advice. Prior to this, she worked with a range of tech, advertising, media and digital clients at Propeller PR and did freelance work for The Telegraph.

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