Rethink, rebuild, recover – levelling up in 2020-21

Andy Wood, managing partner Yorkshire and North East at Grant Thornton (pictured), writes on the Northern Powerhouse and the levelling-up agenda.

The North of England is resilient, diverse and vibrant – the backbone of the UK. It’s where things are made, where world-changing ideas are born. It’s the home of incredible culture, sporting and leisure attractions, stunning coastlines, National Parks, and world class centres of knowledge and learning.

It’s also home to 15.3m people, some 1.1m businesses and, with an economy pre-Covid worth nearly £340bn, the Northern Powerhouse is ripe with the power of possibility.

The regions that make up the North have to draw on all they have to offer over the next few months as everyone connected to UK Plc faces some of the most unusual market conditions we’ve ever seen – and a series of potentially defining moments.

Our own research has shown how profoundly UK mid-market businesses have been affected by the pandemic.  Some 88% have made fundamental changes to their business model during the crisis, according to research compiled for Grant Thornton’s International Business Report. The research also found that 50% are planning to continue with the new model going forward, as the pandemic has highlighted areas for improvement.

Digital transformation was ranked top, with 48% of UK companies anticipating they will need to make more use of technology. This was followed by changes to improve their organisational flexibility (41%), improve their crisis management process (36%) and build more resilience in their supply chains (33%).

Less than a third (31%) of UK companies feel optimistic about the outlook of the country’s economy over the next 12 months. This fall in optimism is also impacting revenue expectations with less than a third of UK companies (32%) expecting to see an increase over the next twelve months – the lowest level recorded by the IBR since it launched in 2011. On average, UK firms expect revenues to fall by 11% in 2020 due to COVID-19.

Economic uncertainty was cited as the biggest constraint to growth for the UK mid-market (70%). A shortage of orders (51%) and a shortage of finance (45%) were also highly ranked, both increasing in significance since the second half of 2019 (+12 and +11 percentage points respectively).

The findings reflect the reality of businesses pivoting and adapting – and the significant decisions ahead for every CEO and CFO as we work towards recovery, manage the impact of any local lockdowns, and face up to the realities of Brexit.

To my mind the Covid-19 pandemic, and the economic aftershocks it is causing, demands that we look at the Northern Powerhouse, and indeed all regional development, through a new lens – where job retention and job creation are the chief priorities for the government.

The last few months has seen the government take unprecedented steps to support the economy, with a package of interventions costing nearly £200bn this year and rising.

Despite programmes such as the Job Retention Scheme, bad news stories continue to dominate the news agenda, with major companies in retail, hospitality, aerospace and automotive laying off staff in their thousands with concerning frequency. With confidence low, demand for goods and services may not bounce back to pre-lockdown levels until next summer, and Government intervention will remain key.

The Prime Minister’s speech in early July, where he cited US President Franklin Roosevelt’s ‘New Deal’ as his model for a fresh wave of accelerated infrastructure investment, confirmed there will be no return to austerity.

With the Autumn Budget and a Comprehensive Spending Review to come, and LEPs busy making submissions now to support local recovery plans, there will be a lot of focusing on where spending is directed. We are also expecting a major Energy White Paper in the autumn, probably focused on how we achieve a clean recovery by decarbonising our industries.

There are suggestions that a Northern Transport Acceleration Council is soon to be announced to oversee a £6bn upgrade of the Manchester-Leeds rail line, and that Grant Shapps, who has cabinet responsibility for the Northern Powerhouse, plans to set up a “DfT North” hub, moving civil servants to the region from Whitehall, are also highly positive indicators.

While the government’s economic response to COVID 19 was necessarily – due to the need for a coherent and rapid response – led from Downing Street, it did underline once again how centralised the UK is.

Despite local government minister Simon Clarke recently pledging that the forthcoming Devolution White Paper would set out a ‘road map’ for a new wave of mayors and a set a ‘clear path for levelling up’ every region, the time frame of delivery for this over the next decade has alarmed critics.

Advocates of more decentralised power, including a number of think tanks such as The Smith Institute, argue that this 10-year timeframe will inevitably mean that the old Whitehall command and control structure will continue to be preferred vessel of policy delivery.

The promised Northern Powerhouse Growth Body, announced by the Prime Minister at the NP11 Convention of the North event in Rotherham in September 2019, has not yet taken shape, adding credence to the concern that the government is not addressing the rebalancing agenda with any kind of urgency or high priority.

I think people in Whitehall need to remember that, despite the North’s renaissance as it emerged from the post-industrial period, there are still pockets of serious depravation, multi-generational worklessness and severe health inequalities blighting communities across the region. Covid threatens to underline the North-South divide.

The UK is one of the most centralised developed countries in the world, dominated politically, economically and culturally by London. According to the Institute for Public Policy Research, unless investment in the North is delivered, transport spending on Londoners will be nearly three times that of their Northern counterparts every year.

Furthermore, it would also cost £700m in extra funding to subsidise culture and the arts in the North to the same level as in London. There are also persistent health inequalities between North and South, lower life expectancies, higher rates of unemployment, lower educational attainment, lower productivity and lower incomes. 2020 in focus.

The figures speak for themselves and across the Northern Powerhouse business and civic leaders need to remain united and hold the government to its promise of a levelling up agenda.

Photo Credit – Supplied