Government Should Devolve More Powers And Consider The Establishment Of More Industry Clusters

The economic gap between London and cities within the so-called ‘Northern Powerhouse’, including Leeds and Sheffield, is set to widen significantly over the next 10 years – 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 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).

Despite devolution deals in Manchester and now in Sheffield, the combined growth across Yorkshire & Humber, the North West and North East, 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) shows that annual GVA in Leeds at the end of 2015 Q2 was £20.9bn whilst in Sheffield it was £11.4bn.This represents an increase compared to the previous 12 months of 2.6% and 2.3% respectively.

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

Leeds – 2.6%
Sheffield – 2.3%
Hull – 1.6%
Greater Manchester - 2.3%
Liverpool - 2%
Newcastle – 2%
Sunderland – 2.1%
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 6.9% in Sheffield, 7.6% in Leeds, 8.6% in Greater Manchester, 8.1% in Liverpool 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 over the next ten years is expected to be:

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

Paul Firth, Irwin Mitchell Partner and Regional Office Managing Partner of its Sheffield office, said:

“The Yorkshire region is performing well at the moment but the city economies of Sheffield and Leeds are still not growing at the same rate as London and other cities in the South East. The latest devolution deal in Sheffield is welcome but there is a danger that without a significant increase in investment, the Northern Powerhouse initiative will not work.

“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.

“Investment in infrastructure is one part of the mix and we believe that the Government should employ a range of policies tailored to different regions, rather than assuming that a one size fits all approach will work.”

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.

Overall the survey found that nationally, 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 27% of businesses in Yorkshire thought that the Government was doing enough.

Despite the announcement of a devolution deal being signed in Sheffield, just under half (45%) of business leaders in Yorkshire are confident that the greater devolution of powers will boost economic growth in their region, whilst three quarters said that a further increase in transport & infrastructure spending would be beneficial to Yorkshire. 62% said that they wanted the ability to set business rates.

When asked what the number one priority for helping to support future economic prosperity, 25% of businesses in the region responded by calling for greater investment in the region’s roads. This was the most popular response and compared with large scale infrastructure projects such as HS2, which scored much lower.

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.