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Let the industrial north prosper again

pauljohnsonThe government has lauded the recent economic recovery and ‘rebalancing the economy’ has been one of the popular phrases of the coalition. But 80% of new private sector jobs are in London and many people in the north are not feeling the effects of the recent economic recovery.

One of the reasons the pre-2008 model of economic growth failed is that the UK relied too heavily on public and private borrowing rather than on income generated through selling goods and services to the rest of the world. The UK economy needs to rebalance sectorally and spatially in order to be more resilient and avoid being over-reliant on London and its financial sector.

The Core Cities Group has argued that major cities outside of London can drive economic growth and rebalance the economy. Ed Miliband announced on 8 April that Labour would devolve power and finance to city-regions to rebalance UK growth. However they ignore the role of Britain’s industrial communities, home to perhaps a third of the UK population.

Britain’s industrial communities can also be part of the solution to narrowing the widening north-south divide. They just require the right policies from government to enable their potential to be realised.

Potential policies are outlined in the Industrial Communities Alliance’s ten-point action plan, launched this week. To rebuild the economy of Britain’s industrial communities and subsequently deliver a rebalanced economy it wants:

  • A new emphasis on industry and a tax regime to facilitate this
  • Less infrastructure investment in London and the south east by delivering a more equitable investment programme across the regions
  • Introduce a job creation programme in areas in the north and Midlands with the greatest shortfall in job opportunities
  • Cut unemployment and low pay, not benefits

Industrial investment and tax incentives: The industrial north, as well as Scotland and Wales, would benefit from a revival in industrial investment as these are the places where so much UK manufacturing is located. To deliver this industrial revival to narrow the north-south divide requires a tax system to facilitate this. The tax regime needs to encourage investment in plant, machinery, research and development and skills, while discretionary tax incentives need to target specific places, sectors and projects.

Infrastructure investment: Many of the big infrastructure projects which are currently underway or planned are located in or around London. The IPPR calculated that spend per head in the latest publication of the government’s national infrastructure plan equates to £4,893 in London, £303 in Yorkshire and the Humber and £246 in the north east. This has to be rectified in order to rebalance the economy.

The treasury needs to move away from appraisal techniques which prioritise easing congestion as this results in yet more investment in and around London. The economic benefits of investment in infrastructure in the regions lays the foundation for future economic growth. Despite these benefits being harder to quantify than congestion statistics they are no less real.

Job creation: The government’s work programme rests on the assumption that there are enough jobs available. In many economies in the north and Midlands this assumption is wide of the mark. The Industrial Communities Alliance’s ten-point action plan proposes a job creation programme to sit alongside more conventional economic development activities. This would deliver jobs for in Britain’s weakest economies and contribute to tackling the north-south divide. A geographically targeted job creation programme would cost the exchequer substantially less than its up-front cost because the spending on wages would be offset by savings in benefits and extra tax revenue.

Welfare reform: Research shows that in Britain’s older industrial areas the financial loss per head from welfare reform is often more than twice that in much of southern England. As the Financial Times stated, ‘welfare reforms are set to widen the north-south divide’. Cutting welfare benefits won’t reduce the numbers of out-of-work unless there are more jobs to be filled.

Economic growth will have the biggest effect on claimant numbers if it is concentrated in the places where the shortfall in job opportunities is greatest. Rebuilding the economy in the industrial areas of the north, Midlands, Scotland and Wales has the potential to slash billions from the treasury’s spending on welfare and would deliver a more broadly based model of growth building on the potential of industry in Britain’s regions.

Narrowing the north-south divide: Rebalancing in favour of Britain’s industrial communities has the potential to provide a boost to national income, to public sector finances and to employment.

Britain’s older industrial areas should benefit from – and contribute positively towards – the economic rebalancing which is required. But they can only do so if the right policy framework is in place.

If the coalition and Labour are serious about their rebalancing mantra then they need to remember the industrial north by giving it the chance to prosper once again.

 

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