Economic Gap Between ‘Northern Powerhouse’ And London To Grow By £25bn In Next 10 Years

The Government’s recently announced industrial strategy could boost city economic growth across the UK, but it will not be a game-changer in terms of tackling the North-South divide – according to Irwin Mitchell’s latest UK Powerhouse report.

Announced at the end of January 2017, the Government’s ‘Building our Industrial Strategy’ green paper proposes 10 pillars of economic growth including investing in science, research and innovation, upgrading infrastructure and cultivating world-leading sectors.

The plan aims to drive and ‘divide growth across the whole country’, and deliver this through investment, bolstered by regional growth funds. The strategy’s public consultation and closed on 17 April 2017.

The latest UK Powerhouse report by law firm Irwin Mitchell and the Centre for Economic and Business Research (Cebr), welcomes many of the proposals but raises concerns that not enough is being done to develop more balanced city economies across the UK.

To demonstrate that the North-South divide will be insufficiently addressed by the current round of policies and investment, UK Powerhouse predicts that not one city in the North or the Midlands will be amongst the top 10 fastest growing in the next 10 years.

It also predicts that the gap between London and the Northern Powerhouse economies will grow by £25.7bn over the next 10 years. The gap between London and the Midlands Engine region is set to increase by £46.6bn during the same period.

Irwin Mitchell’s latest study calls for more details on how an over concentration of industries in certain locations can be avoided – something which the report says can limit a city from maximising its true economic potential.

It also says insufficient detail is provided by the Government on how it wants slower growing regions to emulate the successes of cities such as Milton Keynes, Oxford and Cambridge, where clusters and networking effects have driven growth.

Although there is praise for the planned £126m investment into a world class research institute at Manchester University, the report raises concerns about the overall level of detail included by the Government on how to address regional imbalances in education and skills.

UK Powerhouse highlights that the fastest growth cities in the UK have multi-faceted and well-balanced economies, but warns that the Government’s aim of cultivating world-leading industries will mean the Government is likely to support already strong industries and this could hold back already slower growing cities.

An example of the likelihood of investment being channelled into already strong industries is the £49.7m which has been allocated for the International Advanced Manufacturing Park in Sunderland.

This investment will strengthen the region’s automotive sector but this industry already dominates the city’s economy and it will leave only £7.5m for Newcastle, Gateshead, Northumberland, Durham, and Tyneside. The report highlights that the singular focus on car manufacturing, the intended use for the business park, means other industries will be left picking up crumbs of investment overall. 

Expert Opinion

“We have seen in the case of the North East Local Growth fund that there is a focus on established industries, namely manufacturing, leaving little to other sectors. There are some schemes looking to grow specialised digital sectors, such as Tech North, but these have not seen levels near the investment of manufacturing in the North.

“The challenge is how to emulate the successes of cities such as Milton Keynes where clusters and networking effects have driven growth. The Government has been thin on detail as to how this will be done.

“The Government’s regional investments in initiatives such as the Northern Powerhouse and Midlands Engine will certainly boost these regions, but these investments as they stand are not likely to narrow the gap between the North and South.

“The North and Midlands are receiving investment, but so too are London and the South East, especially from abroad. The new industrial strategy does not rebalance this fact.
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Jack Coy, an economist at Cebr, said: “Looking at our 10 year forecasts of GVA, the best performing cities are set to still be those within current high growth regions of London, South East and East. The current rounds of investment are likely to have a positive effect in the North and in the Midlands, but are not sufficiently higher than comparable investment in other regions.

“We expect impacts of the new industrial policies to be broadly equal upon most regions, rather than redistributive. A possible exception is Manchester, which is likely to benefit from network and clustering boosts, skills and institutions, high shares of government investment, and new powers for the incoming metro mayor.”

The full UK Powerhouse report can be downloaded here