Tuesday, January 04, 2005
Finessing the North-South divide
Posted by David Smith at 03:58 PM
Category: David Smith' s magazine articles

FOR those of us who have, over the years, monitored regional differences in the United Kingdom, one constant stood out. This was that the people of the north-east felt most let down by the way the economic cards had been dealt.

The north-east, having borne the brunt of successive industrial declines, and most notably the loss of coal, steel and shipbuilding, has always felt itself of the receiving end of the rough end of national policies.

Lord “Eddie” George, the former governor of the Bank of England, was once persuaded by a journalist to concede that high unemployment in the north-east was “a price worth paying” for low inflation in the rest of the country. The resulting headlines were some of the worst the Bank has had in recent years.

Going further back, to the dying days of the Macmillan government in the early 1960s, Lord Hailsham was appointed minister for the north-east in addition to his several other ministerial responsibilities and, on a visit to Darlington, symbolically donned a cloth cap. Later, at a “ten shilling a head” roast beef dinner, Hailsham promised speedy regeneration for the region. It did not happen, at least not in the 1960s and 1970s.

The north-east has, to add insult to injury, had to put up with the fact that Scotland, its neighbour, has always done better in terms of political representation at Westminster, the ability to attract inward investment through its own development agency and significantly higher levels of public spending per capita. More recently, of course, Scotland has had her own parliament.

If anywhere if the country was going to vote in favour of a regional assembly, therefore, it would be the north-east. That was why last autumn’s referendum result was so extraordinary. In a 47.8 per cent turnout, the north-east voted by 696,519 to 197,310 – more than three to one – against the assembly championed by John Prescott, the deputy prime minister. Every district in the north-east, from Alnwick to Wear Valley via Durham, Gateshead and Sedgefield (where Tony Blair is MP), voted an overwhelming no. This had the effect of persuading the government, sensibly in the circumstances, that it was not worth pursuing assembly plans for other regions.

And, while opponents of the assembly had successfully persuaded voters that the north-east assembly would be an expensive talking-shop, and an unnecessary layer of bureaucracy, the “no” vote may also have reflected subtle but important changes in perceptions about the north-south divide.

Take unemployment, the most enduring measure of regional economic differences. Which part of the north has the highest unemployment rate in the UK? None, in fact. The Labour Force Survey has unemployment in London at 7.1 per cent, compared with a national average of 4.6 per cent. The north-east, to be fair, comes next on 5.9 per cent, followed by Scotland (5.2 per cent), Northern Ireland (5.1 per cent), the West Midlands (5 per cent) and Wales (4.9 per cent). But even these higher unemployment regions are not that much above the average.

The same is true, incidentally, of the claimant count, which comes up with lower levels and rates of unemployment. On this measure the north-east is at the top of the unemployment league. But its rate, 3.9 per cent, would have been regarded as extraordinarily low even a few years ago, and it compares with a national average of 2.6 per cent. The days when the north-east had 12, 13 or 15 per cent unemployment are long gone.

The narrowing of the unemployment gap does not tell the whole labour market story. There has been an increasing focus in recent months on economic inactivity, and the rise to eight million in the number of economically inactive people of working age.

Employment and activity rates tend to be higher in the south. In the south-east, East Anglia and the south-west around 82 per cent of the population is economically active, compared with 78 per cent in the north-west and Yorkshire & Humberside, and just over 74 per cent in the north-east. Here again, however, the differences are not what they were and Greater London, with an activity rate of 75 per cent, is in a similar position to the northern English regions.

Nobody would pretend that regional differences have been eliminated in the UK. On many of the measures, however, whether it is gross domestic product per head, disposable incomes, per capita consumer spending or relative wages, there is evidence that the gap has stabilised. In 1990, for example, the north-east’s disposable income per head was 88 per cent of the UK average, a decade later it was 89 per cent. In the case of the north-west, it remained at 94 per cent of the UK average.

More recently, too, the house-price boom has spread from south to north. Figures from the Office of the Deputy Prime Minister show that in the 12 months to mid-2004 there was a 12 per cent rise in UK house prices. Prices in the south-east rose by less than 5 per cent over the period, while in the north-west there was a 23 per cent increase, and in the north-east one of 26 per cent. This south-to-north “ripple” effect has, of course, been a feature of the mature phase of previous house-price booms.

Perhaps the biggest change, though, is not in the statistics but in perception. It is now widely recognised that there are two economies in Britain. The one centred on London and the south-east is increasingly international in outlook and influence, dominated as it is by sectors such as financial services. Then there is the rest of the UK, what Kenneth Clarke, the former chancellor, used to call the real world. This no longer means an economy dominated by metal-bashing or heavy industries, although it does imply a productive economy in a more general sense.

Government policy can affect the distribution of economic activity between the London and south-east economy and the rest of the UK at the margin, for example by transferring civil servants to the regions from Whitehall. But, and this is now central to Labour’s policy approach, there would be no gains for the north by restricting growth inside the M25. Meanwhile, London’s labour market problems are testimony to the fact that not all its streets are paved with gold.

The proposed regional assemblies were an idea left over from the days when regions competed with one another for jobs and prosperity. That has changed. What is good for one region is good for others, and for the UK economy as a whole. This is not a zero sum game. And that, instinctively, is what the people of the north-east believed when they buried the idea of regional assemblies.

From Business Voice, December 2004


Of course the explanation for all of these statistics could arise because the population figures are underestimated in the South and over estimated in the North; an underestimated population in London would explain why the (frictional) unemployment rate is higher than in the North, while the employment rate is higher, as is the output level and number of claimants.

Given enormous adjustments needed for the last census, its hard to have much confidence in the ONS estimates of the stock of population anywhere. And since no good record of international migration, let alone intranational migration are kept, there’s a strong possibility that the unemployment/employment and participation figures will getting less and less accurate over time.

Posted by: giles at January 5, 2005 05:08 PM

Hi im an economics 3rd yr student and found this piece very interesting and helpfull in my essay on UK employement trends. Thankyou very much for this insight and knowledge.

Posted by: Matthew Gayne at April 6, 2006 03:10 AM

Hi im an economics 3rd yr student and found this piece very interesting and helpfull in my essay on UK employement trends. Thankyou very much for this insight and knowledge.

Posted by: Matthew Gayne at April 6, 2006 03:11 AM