London's Economy To Grow Almost Twice As Fast As The ‘Northern Powerhouse’ Over The Next Decade

The economic gap between London and major UK cities, including those in the North East, is set to widen significantly over the next 10 years unless the Government has a radical rethink of its current policy for tackling the north south divide – says a new report.

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 ahead of the Conservative’s Conference in order 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 combined growth across the North East, the North West, and Yorkshire & Humber, is expected to be half of that - leaving output in these regions more than £110billion lower than that of London in 2025.

The report’s analysis and economic modelling from the latest ONS data (2013) showed that the annual GVA in Newcastle at the end of 2015 Q2 was £9bn representing a 2% growth compared to the same period 12 months ago. In Sunderland the city’s economy was worth £5.2bn (2.1% growth) and in Middlesbrough it was £3.3bn (1.8% growth).

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

Newcastle – 2%
Sunderland – 2.1%
Middlesbrough – 1.8%
Greater Manchester - 2.3%
Leeds – 2.6%
Sheffield – 2.3%
Liverpool - 2%
Hull – 1.6%
London – 3%

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 7.2% in Newcastle, 5.6% in Sunderland, 4.4% in Middlesbrough, 7.6% in Leeds and 9.3% in Birmingham.

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 the major Northern cities by 2025 is expected to be:

Newcastle – 17.1%
Sunderland – 15.2%
Middlesbrough – 12.4%
Greater Manchester – 18.4%
Leeds – 17.1%
Sheffield – 15.8%
Liverpool – 17.6%
Hull – 12.8%
London – 27.2%

Niall Baker, CEO at Irwin Mitchell’s Business Legal Services division, said:

“We believe it’s vital that the entire United Kingdom has the opportunity to flex its economic muscle. Not only do we want to see London continue to flourish, it’s absolutely vital that the rest of the UK doesn’t get left behind.

“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. Investment in infrastructure is one part of the mix and we believe that the Government needs 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.”

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.

Overall the survey found that only 31% of businesses thought the Government had taken the relevant steps to address economic growth in the region they operated in, whilst 38% thought more action was required.

The regional breakdown of the survey results is however stark. Despite all the rhetoric around building a ‘Northern Powerhouse’, only 14% of company bosses in the North East believe the Government has taken the necessary steps to boost economic growth in their region.

31% believe greater devolution of powers would boost economic growth in their region, whilst 59% said that an increase in transport & infrastructure spending would be beneficial.

Scott Corfe, Head of Macroeconomics at Cebr, said:

“After winning the May general election, David Cameron vowed to lead a ‘One Nation’ Conservative government. Yet significant announcements to spread growth across the UK have been surprisingly lacking to date. The findings of this report suggest that more radical measures are needed to generate a series if regional powerhouses.

“Without these David Cameron risks breaking his vow, particularly as further austerity has the potential to hold back the economies of some of the UK’s poorest regions. It is vital that private enterprise is allowed to thrive in these regions as a way of offsetting austerity.”

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.

For further information about the report, click here.