Government Should Devolve More Powers And Consider More Radical Policies

The economic gap between London and the West Midlands is set to widen significantly over the next 10 years unless the Government has a radical rethink of its current policy for rebalancing the economy.

The joint study by Irwin Mitchell and the Centre for Economic & Business Research (Cebr) is called ‘UK Powerhouse – supporting economic strength and bridging the prosperity gap’ and has been launched to raise concerns about the Government’s wealth-spreading agenda.

According to the study’s unique Powerhouse Tracker, a city-by-city measurement of current and projected economic strength, London’s economy is expected to grow by 27% between 2015 and 2025 to just under £450billion* (2012 prices).

At the same time, the West Midlands is expected to grow the size of its economy by 15% with GVA expected to reach £131.7billion.

The report’s analysis and economic modelling from the latest ONS data (2013) showed that the annual GVA in Birmingham at the end of 2015 Q2 was £24,552billion representing a 2.3% growth compared to the same period 12 months ago. According to the study, the economy in Birmingham has grown 5.1% since the start of the financial crisis in 2008. Although this compares favourably to Greater Manchester, London has recorded growth of 10% since then.

Compared to London’s 3% annual growth in GVA, over the last year, the following cities’ GVA have grown at the following rates:

Birmingham – 2.3%
Coventry – 2.2%
Wolverhampton – 1.9%
Stoke-on-Trent – 2%
Greater Manchester - 2.3%
Leeds – 2.6%
London – 3%

Projected city growth between 2015 - 2025

The report predicts that in the next ten years, the fastest increases in real GVA growth will continue to be in the South with cities including Cambridge, Milton Keynes and Oxford continuing to outperform places such as Hull, Middlesbrough and Swansea.

London’s economy is expected to create an additional 548,142 jobs by 2025. This 11.1% growth in employment compares to 9.3% in Birmingham, 8.6% in Greater Manchester, 6.9% in Sheffield, 8.1% in Liverpool and 7.6% in Leeds.

By 2025, the value of the goods and services produced in London will according to the report be £444.7billion, representing a 27.2% increase.

Compared to this, the growth rate of GVA in the major cities over the next ten years is expected to be:

Birmingham – 19.2%
Coventry – 17.5%
Wolverhampton – 15.8%
Stoke-on-Trent – 15.5%
Greater Manchester – 18.4%
Leeds – 17.1%
London – 27.2%

Chris Rawstron, Partner and Head of Irwin Mitchell’s Business Legal Services division in Birmingham, said:

“There has been a lot of talk about the West Midland being the ‘engine room’ for the UK  economy but these results show that despite a decent performance in the last 12 months, a great deal more is required to ensure that the region at least grows at the same rate as London and other cities in the South East.

“Investment in infrastructure is an important element, but this report considers all current Government policy and concludes that the gap between the West Midlands and London will get wider over the next decade. In order to tackle this effectively, the Government needs to listen to the voice of business and take a more radical approach to rebalancing the economic map of the UK.”

Policy considerations and the voice of business

As part of the UK Powerhouse study, Irwin Mitchell commissioned a YouGov survey of 1,000 businesses to examine the policy measures which the business community themselves think are the best way of boosting regional economic growth.

The survey found that only 32% of businesses in the West Midlands thought the Government had taken the relevant steps to address economic growth.

48% believe greater devolution of powers would boost economic growth in their region, whilst 55% say an increase in transport & infrastructure spending would be beneficial. Two thirds wanted the ability to set business rates.

When asked what the number one priority for helping to support future economic prosperity, 1 in five (19%) of businesses said investment in improved telecoms. Large scale infrastructure projects such as HS2 scored much lower.

Irwin Mitchell’s UK Powerhouse report will be published later this month and will provide a review of policy considerations for ensuring the prosperity gap can be closed and the Government’s wealth spreading agenda can succeed.

The report’s authors, Cebr, recommend a number of policy measures aimed at narrowing the regional divides in economic performance and to ensure the continued growth of existing powerhouses such as London. These include:

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