The north’s economy needs a radical new approach if it’s going to catch up with the south

November 13, 2012

There’s a debate today in Parliament about the North East’s economy. David Miliband has been setting out his ideas about how to boost it.

So I thought it might be worth looking at how the North’s economy has been doing.

Let’s start with the bad news. Though the last Labour government came to power determined to close the north-south gap, and although they had huge majorities, loads of money to spend, and thirteen years in power, the north’s economy actually fell further behind during their time in government.

Looked at in terms of Gross Value Added (GVA) per capita, my home county of Yorkshire went from being 10 per cent behind the UK average in 1997, to being 17 per cent behind in 2010. The north west went from being 11 per cent behind to 15 percent behind. The decline in the north east was smaller, but from a worse starting point, going from 22 to 23 per cent behind. The graph below shows their relative performance, where 100 is the UK average.

Given the uniquely benign circumstances, that’s a profoundly depressing result. So I can’t help thinking that something new – something bigger and bolder – is going to be needed if the north is going to catch up.

But first, let’s talk about finance.

Financial services certainly boosted London in recent years. In fact London’s financial services alone overtook the entire economy of the north east in terms of Gross Value Added. I think this is a stunning fact.

But does this mean that if we just demolished the City, the north would flower again? Sadly not. Financial services are only about a fifth of the London economy, and it’s overwhelmingly an export industry. Even with finance excluded, London grew much more quickly than the rest of the country.

The real advantage of London (and its south eastern hinterland) is its size. Like a black hole, London sucks in talented and hungry people from all over the world. As Ed Glaeser’s work shows, in the age of the knowledge economy big cities have massive advantages.

We can see that effect in the north too, if we look a bit more closely. The Office for National Statistics breaks up the north into 30 smaller areas.

We should look at GVA in absolute terms, as well as per head – because it might simply be that an area that attracts a lot of new people sees its average GVA per head go down. So the list below shows per capita figures in blue, and absolute in pink.

The list might surprise some people. For starters, Liverpool comes top. A city that’s been pitied, piloried and made fun of, has actually been the top performer, and East Merseyside (which is much poorer) came second. It’s a pleasure to see that. Compared to when my brother lived in Toxteth in the mid 1990s, the city has come on leaps and bounds.

And broadly speaking, the other bigger cities have done better, though not spectacularly. Tyneside and the south of Manchester have just about held their own, compared to the rest of the country.

However, smaller, coastal places have really suffered. Hartlepool, Blackpool, the East Riding and the north of Lincolnshire have all fallen much further behind.

While bigger cities have done better than small coastal places, even they have struggled to keep up with the rest of the country. Only two out of thirty northern areas caught up with the UK average in terms of GVA per head. In absolute terms, just six out of the thirty areas grew faster than the UK average.

What does this mean for policy makers? Are there lessons here that could boost the northern economy?

We looked at that question in a recent report.

Cities matter more to growth than in the past. But internal migration figures show nearly a million people have left our cities in recent years. Between 2000-01 and 2007-08 major urban areas lost 933,000 people; significantly rural areas gained 201,000 people; the most rural areas gained 352,000 people; and the rest went to medium-sized urban and semi-urban areas. In other words, There is a steady urban to rural flow, contrary to trends all over the rest of the world.

Town planners talk about an “urban renaissance”. And the centres of our big cities did improve in the 1990s and 2000s, driven by a tripling of student numbers and the growth of single young people. But even these demographic trends are slowing, and they never really lifted the rest of our cities. A shiny new city centre doesn’t necessarily mean that the rest of the city is sorted.

Planners pushed high density, high-rise development in the centre of cities. The result are some awesomely boxy and ugly new developments in many northern cities, full of small flats. But in general this isn’t what people want. People with kids want gardens and green space.

One way the north could compete more effectively with the south would be to give people the green places that they want to live in, and often can’t afford in the south. But that would allowing cities to expand outwards, which planners oppose. NIMBYism in the rich south is chronic, which should give northern cities an advantage – if they’re prepared to grab it.

Many cities have policies to try and retain more graduates, and prevent them being sucked away. So far they’ve not been very successful, and London has pulled furher ahead in the race for skills (see below).

Perhaps they should change their planning rules to allow green development, and then change their pitch: “Dear London based graduates – Move to Manchester, Liverpool or Leeds, and you could have a garden, a house bigger than a shoebox, and maybe even drive to work. Oh, and if you are so inclined, school fees are way lower.”

You don’t think planning matters? Look at Preston. It enjoyed the third fastest rate of private sector job creation of any town in England between 1998 and 2008. And transport and land use explains a lot of it. The failed plans for Central Lancashire New Town left behind great roads and loads of land with planning permission already agreed. So it was the ideal place to locate.

What else? While I’m opposed to regional pay, I think there is an opportunity to make public sector pay more local and more market facing. And as long as the money stays in poorer regions, rather than being sucked into the Treasury or London, then the money that would free up could create a huge number of jobs. We calculated that 288,000 jobs could be created in poorer parts of the country. (I’ve written elsewhere on why we should free up resources for a war on unemployment).

And industrial policy? Politicians are all very excited about it again. We certainly need to learn from what’s worked in the past (Silicon Glen, cars in Sunderland, Docklands in London and Liverpool). But we should learn from our failures too, and it isn’t going to be a magic wand. In fact there is no reason why the industries of the future should necessarily locate where the industries of the past were.

There’s a load of other things I could mention, but this post’s too long already. I’m not a pessimist about the north’s economy, and there are lots of examples of success, showing what can be done. But too much of what’s been done in recent years has failed. So the answer can’t just be more of the same.

This article originally appeared on The Daily Telegraph’s website

Join our mailing list