Sunday, June 05, 2022
Northern lights have dimmed as the South powers ahead
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. Not to be reproduced without permission.

The big picture is important when it comes to looking at what is happening. But an economy is comprised of many smaller parts, and for the UK those smaller parts are its regions and nations. It is, of course, possible to drill down even further, to local level.

Staying with those regions and nations, though, the Office for National Statistics (ONS) has just published some new figures. They are not as up to date as the national figures, but they tell an interesting story.

In the latest quarter for which figures are available, the July-September period of last year, the London economy grew strongly, up by 2.3 per cent, even as most other regions stagnated or shrank.

In the Armageddon year of 2020, the latest annual figures, when the economy overall recorded its biggest slump since 1921, the smallest annual falls were in London and the southeast, the biggest was in the northeast, followed by the West Midlands.

The recession pushed London and the southeast, unusually, into having budget deficits – normally they are in surplus – though these deficits were much smaller than in other parts of the country, particularly when adjusted for population.

This is quite interesting, because it runs against the general perception, which is that London was hardest hit by the pandemic, knocked by a plunge in commuter numbers and a loss of city centre activity. But London and the southeast may have adapted more quickly to working from home and local town centres appear to have thrived even as the centre was struggling.

It is part of a longer-term pattern. If we take the period since the financial crisis, when people also thought that London was badly wounded, its economy, measured by gross value added, grew by more than 35 per cent to the end of last year, compared with just 1.4 per cent for the northeast.

Measured from another recent big event, the EU referendum, it is notable that three of the regions which voted most heavily and enthusiastically for Brexit, the West Midlands, the East Midlands and the northeast, had economies at the end of last year which were smaller than at the time of the vote. So was the northwest. Scotland, which did not vote for Brexit, also had lower output at the end of last year than in 2016, though London was well up.

The West Midlands has suffered particularly because of the woes of the motor industry. Globally, the industry is in trouble because of supply-chain problems, particularly for microchips. But the UK appears to have particular problems, and a debate and a battle is under way over whether Jaguar Land Rover will manufacture its electric vehicles in the UK or in Slovakia.

A few years ago, UK-based car manufacturers were hopeful of surpassing the all-time record for vehicle production, 1.92 million cars, which was achieved as long ago as 1972. In 2016 the total was 1.7 million. But it has been downhill pretty much all the way since then, even before the pandemic. The latest 12-month rolling total is just 752,612. Engine production is also weak, down 19 per cent so far this year on last year’s depressed levels though, not to overdo the gloom too much, commercial vehicle manufacture in holding up better.

The West Midlands has always fascinated me, and not just because I come from there. Students of UK regional policy, which is going through another iteration as we speak, though with the “levelling up” label attached to it, will know that there was a time when parts of the UK were regarded, for policy purposes, as too successful. Regional policy actively discouraged industrial development in London and the southeast and the West Midlands. Things have changed.

Indeed, with a further nod towards this weekend’s Jubilee celebrations, regional changes during the Queen’s 70-year reign have been striking. I only have firm figures from 1966, but the trend has been clear. If we take “the South” as London and the southeast, the southwest and what used to be called East Anglia but is now Eastern England, in 1966 these regions accounted for 44.7 per cent of the UK’s gross domestic product.

By 1990, that share had increased, partly reflecting the manufacturing devastation of the 1980s, to 47.4 per cent. In the intervening 30 years it has gone up again, to an extraordinary 54 per cent. Given the trend, I would estimate that it was just over 40 per cent in 1952. These days London and the southeast, on their own, are 38 per cent of UK GDP.

There is manufacturing industry in London and the southeast, quite a lot of it. But it is part of a more diversified economy. It is hard, indeed, not to see the story of the UK’s regional inequality, which is extreme, and the concentration of economic activity in the South, as being closely linked to the relative decline of manufacturing industry.

In 1952, manufacturing accounted for nearly 36 per cent of GDP, and there were whole regions, including the West Midlands and the northeast, where industry entirely dominated mainly male employment. By the end of the 1980s, manufacturing’s share of GDP was down to less than 20 per cent. Now it is under 10 per cent and may be heading for another downgrade. While the service sector is back above pre-pandemic levels, manufacturing is yet to do so.

It is entirely right that the government is trying to respond to the UK’s regional inequalities, though its recent levelling up white paper was long on elegant analysis and well-designed graphics but thin on new ideas.

Rishi Sunak has been posting photos of himself at the government’s new Darlington economic campus and I am sure that those who work there will find it rewarding to do so, not least if it allows them to escape London house prices. The challenge, however, will be to stop this becoming just another regional branch office, as has happened with so many of these civil service outposts in the past.

Otherwise, the government appears to be as gimmicky now as when Lord Hailsham, as Tory minister for the north in the 1960s, donned a cloth cap for a visit to the northeast. A whippet may not have been available. The latest gimmick is to suggest relocating the House of Lords to Stoke, or York. If that happens, I would be prepared to eat a cloth cap.

The government has got some things right, by promising a big increase in infrastructure spending, though, as a forthcoming report from the Northern Policy Foundation is expected to say, the key will be turning those promises into timely and efficient delivery.

There is also, and this is not a new point from me, a pressing need for more private sector businesses. Each of the four regions that make up the South have more than 1,100 businesses per 10,000 population, with the peak London’s 1,460. Every other region has fewer than 1,000, with the lowest in the northeast, 700, Scotland, 752, and Wales 796.

Businesses and government have to work together if we are to reverse decades of rising regional inequality. Not wishing to spoil anybody’s weekend, the omens are not good.