Giving the Rest of the UK a Growth Boost

Mark Carney has been up in Scotland, querying whether one part of the UK could split away from the rest, while retaining the pound.

The Centre for Cities, in a report, said London was attracting talent from the rest of the country, though also highlighted the return of growth and successful job creation in cities such as Liverpool, Manchester, Nottingham and Leeds.

So, as promised, the third and final part of my mini-series. I have written about London’s dominance of the economy and that, in my view, London’s success is, on balance, good for the rest of the country.

That leaves the question of how to improve the performance of the regions, which have seen their share of the UK economic cake decline, and which suffer from slower growth and higher levels of economic inactivity.

This is, of course, familiar ground. For many years I immersed myself in regional policy, with its two broad thrusts, taking work to the workers, or workers to the work. This had some success in the 1950s and 1960s but fell apart from the 1970s with the onset of high unemployment.

In some cases regional policy, by directing more public sector functions to less successful areas, backfired by making those areas more vulnerable to cuts.

So what do the regions need? It is a big subject with many answers but, fresh from visits to the North, the West Country and Wales, let me offer the three ‘i’s. The regions need more investment, more innovation and more infrastructure.

By investment and innovation I mean a more vibrant and entrepreneurial private sector. The figures are stark. In London official figures show there are 1,266 businesses per 10,000 adults, followed by 1,119 in the south-east, 1,061 in the south-west, 1,056 in eastern England, 844 in the East Midlands, 835 in the West Midlands and north-west, 820 in Yorkshire & the Humber, 785 in Northern Ireland, 740 in Scotland and just 633 in the north-east.

Figures from StartUp Britain for businesses created in 2013 showed that more than a quarter were in London, with a long, and in most cases very thin, tail spreading to the rest of the country.

The problems in generating more entrepreneurial activity are formidable. Often in the old industrial areas the culture passed through the generations was one in which people were accustomed to being employed — in shipyards, mines, steel or heavy engineering plants — rather than setting up in business themselves. Add to that the often deadening overlay of too big a public sector and the absence of entrepreneurial activity was unsurprising.

Efforts are being made to change that. The entrepreneurs’ forum in the northeast, chaired by Nigel Mills, brings together 400 private sector businesses, which offer example, encouragement and mentoring to new entrepreneurs. It is starting to make a difference.

In Scotland there is the Entrepreneurial Exchange, set up by the Kwik-Fit founder Sir Tom Farmer in the 1990s. Other examples are springing up.

Businesses in the regions can also use their cost advantage to grab business from London and southeast England. I came across two in the past few days who are doing precisely this. There is a danger, reflected in London’s sky-high house prices, that the capital could price itself out of the market.

Innovation and investment can come to the regions in other ways. Faced with a blank sheet of paper (and some regional investment incentives), many foreign firms chose their inward investment locations well away from London. One of the most successful, Nissan, has just launched an updated version of its Qashqai. Fears that these projects would bring no wider benefits were misplaced.

It may be that more British businesses, and not just in manufacturing, should adopt the blank sheet of paper approach when it comes to new investment. Inertia, and convenience, means firms tend to look for the location closest to them. If they and their executives are based in London and south-east England, that may mean less willingness to look for locations further afield. Breaking that pattern of inertia would help the regions hugely.

What would help massively in that is my third ‘i’, infrastructure. When I travel around the country I am often struck by how hard it can be to get a train back, even quite early in the evening, and the patchy nature of regional air services.

Anyone who has driven between Leeds and Newcastle will know how the A1 goes from fast-flowing motorway, the A1(M), to lorry-clogged dual carriageway.

The Institute for Public Policy Research, and in particular IPPR North, its northern arm, has identified what it says is a huge London bias in planned infrastructure expenditure, with roughly three-quarters of the spending due between now and 2020 in London and the south-east. HS2, which I support, will add to that bias, at least in its initial stages.

There is some dispute, it should be said, about the precise figures, with the Treasury and transport department querying the extent of the regional bias suggested by the IPPR. But the broad thrust of its analysis seems undeniable, despite the fact that suppliers outside London and the south-east benefit from orders associated with infrastructure projects such as Crossrail, in and around the capital.

The rest of the country needs a lot more infrastructure. IPPR is putting together a list of five infrastructure schemes (some of which will be collections of smaller schemes), which it says will bring easy economic wins for the north. Other parts of the country will have their ideas. Linking the regions with each other is as important as linking them with London.

So is it possible to see those three ‘i’s linking together in a way that brings sustained prosperity to the regions, reversing London’s increasing share of the cake? It is, but it will take a very big effort, so maybe not. But we can hope.

This piece is cross-posted from EconomicsUK with permission.