Sunday, November 25, 2018
We need to talk about Britain's growing north-south divide
Posted by David Smith at 09:00 AM
Category: David Smith's other articles


My regular column is available to subscribers on This is an excerpt.

One of the most enduring characteristics of the UK economy is its regional imbalances. I should know. I wrote a book about North-South divisions as long ago as the 1980s, which I will not be as vulgar as to plug here, to be told by some at the time that any such imbalances were fast disappearing, and that it was all old hat.

Well, that hat may be old, but it is still being worn. Regional imbalances can be seen at the heart of the discontent many feel with the country’s economic performance, even with near full employment and nine years into the recovery. It was a factor, possibly quite a significant one, in both the Brexit vote and last year’s inconclusive general election. It is why the most commonly used economic slogan for politicians, including Theresa May, is to create “an economy that works for everyone”

So I noted with interest some new figures from the Economic Statistics Centre of Excellence (ESCOE), which has begun to produce up to date or “nowcast” estimates of regional economic growth, on a quarterly basis. Such estimates have until now only been available on an annual basis and after a time lag. ESCOE is a consortium made up of the National Institute of Economic and Social Research, King’s College London, Nesta, the innovation foundation, Cambridge University and, Warwick and Strathclyde business schools.

The research has a purpose. As the researchers remind us, Harold Macmillan, when chancellor, once complained of statistics being too late to be useful, saying: “We are always, as it were, looking up a train in last year’s Bradshaw.” For those of you who have not succumbed to the delights of Michael Portillo’s colourfully-jacketed railway journeys, a Bradshaw was a hardback railway timetable

ESCOE’s estimates tell us that over the past year – running to this year’s third quarter – there are significant regional differences in economic growth. London tops the UK league, with growth of 1.8%, followed by the south west 1.51%, the south east 1.49%. Northern Ireland 1.41%, east midlands 1.32%, Scotland 1.29%, east of England 1.24%, Wales 1.17%, north west 1.07%, Yorkshire & the Humber 1.06% and the poor old north east, just 0.83%.

Northern Ireland is a bit of an outlier, and Scotland has always done better than the regions of northern England, but otherwise the picture is reasonable clear. London and the southern regions of England have been blessed with stronger growth than the rest, and certainly than the regions of northern England. London has grown at more than twice the rate of the north east.

The figures set me digging into ESCOE’s database, which goes back to 1970. Bear with me while I give you a few more numbers. Since annual growth turned positive in 2010, after the financial crisis, the average growth figures are London 2.99%, west midlands 2.21%, south east 1.96%, east of England 1.86%, east midlands 1.81%, Wales 1.73%, south west 1.69%, Scotland 1.67%, the north west 1.35%, notwithstanding the Northern Powerhouse, Northern Ireland 1.27%, Yorkshire & the Humber 0.95% and the north east 0.76%. London was at the heart of the crisis, indeed what happened in London helped cause it, but it has prospered since.

These small differences in growth rates may not sound like very much but compounded, they add up to a lot. The London economy, for example, is over 26% bigger in real terms than at the start of the recovery, compared with 6% for the north east, just under 8% for Yorkshire & the Humber and 11% for the north west.

Over time, regional differences in growth rates matter a great deal. The London economy is more than 3.3 times its size, in real terms, than in 1970, the start of the data, while the south east’s economy is 2.7 times its size back then. The economies of the north east, north west and Yorkshire & the Humber are bigger than they were, but only about double their 1970 size, and thus lagging well behind.

Growth figures tell us a lot, but do they tell us everything? After all, in an economy operating at close to full employment, huge regional unemployment differences are a thing of the past. Southern regions do have lower unemployment but the range in unemployment rates between the lowest, the south west at 2.9%, and the highest, the north east and Yorkshire & the Humber, 5%, is quite small.

For a full picture, however, it is also necessary to look at employment rates; the proportion of 16-64 year-olds in work. In the north east this is just 71%, and lower at 68.5% in Northern Ireland, compared with 77.8% in the south east and 78.9% in the south west.

Most tellingly of all are the spectacular regional differences in productivity; the ultimate driver of living standards. Output, measured by gross value added per hour worked, is 33% higher than the national average, according to the Office for National Statistics. Only London and the south east, 6% above, have productivity higher than the national average.

London’s productivity is between 50% and 60% higher than Wales, Northern Ireland, Yorkshire & the Humber, the east and west midlands and the north east. It is 44% higher than the north west. These are staggering figures.
So that is the problem, the question is what can be done about it. It is a question, it should be said, that has occupied policymakers for many decades, through the high and low watermarks of regional policy.

The simple answer is that most of the country, but particularly the northern regions, need to move up the value chain. If only London has the kind of diversified economic structure, skills and high value-added activity that allows it to compete and often beat the world’s productivity leaders, there has to be something for the rest of the country to elarn from it.

But how? The government has an industrial strategy, though like everything else it has been overshadowed by Brexit, and it has just established an industrial strategy council, under the chairmanship of Andy Haldane, the Bank of England’s chief economist. Membership includes Kate Barker, Archie Norman, Emma Bridgwater, Hayley Parsons and Rupert Harrison, George Osborne’s former economic adviser.

The Institute for Public Policy Research’s Commission on Economic Justice called for “a strategy of ‘new industrialisation’, focused on building regionally distinctive high-tech clusters around the UK’s research-based universities”.

The Centre for Cities has called for a focus on driving productivity improvements in cities outside the “Greater South East” by focusing on the potential for developing high-skilled export businesses across the country. The CBI’s Unlocking Regional Growth report looked at four main areas: skills, better transport links, better management and pushing a higher proportion of firms into exporting and innovating.

These are good ideas which, if enacted would help, though you would not necessarily want to start from here. Whether they are enough must be questioned. And, as the regional growth figures show, these imbalances have built up over very many years, which will take years to solve. That they have to be solved should not be in doubt. We really cannot go on like this.