Lack of growth in the north of England is hindering the UK recovery, Bill Gleeson reports

THE North-South divide is nothing new, but addressing the productivity gap between different parts of the country is becoming ever more urgent.

That’s because the UK can no longer rely on the City of London for economic growth, at least not to the extent it did in the past, if a recent report is to be believed.

The Organisation for Economic Cooperation and Development (OECD) has warned that failure to trigger growth across the north of England and other parts of the UK could hamper the whole country’s recovery.

The OECD research shows that Britain is suffering from “lagging regions”.

It argues that supporting poorer regions should not be seen as social policy but as a way to boosting the economy.

The OECD argues that reliance on the City of London for economic growth is a thing of the past.

Lifting growth rates in the north would have a significant impact on the national picture and “a recovery will not be healthy if large chunks of the British economy are mired in the doldrums”.

The OECD’s judgement was backed by findings of a survey published this week jointly by the Chartered Institute for Personnel and Development and accountancy firm KPMG. The survey showed that more northern firms were preparing to shed staff while in the south firms are preparing to recruit more.

A widening of the north-south divide was now inevitable, the survey concludes.

Also, recent research by the Centre for Cities concluded that for every one net job created in the north between 1998 and 2008, 10 were created in the south.

The government has already taken a number of measures to support business growth in the regions, include cutting corporation tax, exempting small businesses from red tape and cutting employers’ National Insurance contributions. It has also established new economic development agencies in the form of Local Enterprise Partnerships and a £1bn Regional Growth Fund.

Economist Peter Stoney, a director of the Liverpool lResearch Group in Macroeconomics, doesn’t accept the view that financial services in London won’t bounce back and be restored to their former health. He said: “I’m not sure I would go along with that

“The service sector is one of the strengths of the UK economy, so I wouldn’t go hard on the theory that it’s not going to be a prominent part of UK economic growth.

“In the short term that might be the case, but if you look further ahead, the government’s policies are sensible. We stand out from Europe and the US as having put our house in order.

“We should be optimistic in respect of the longer term, as long as politicians stick by their recovery plans

“The north-south divide is always going to be an issue.

“We should put local socio-economic needs ahead of heritage and birds etc. We need to sweep away public sector restrictions and let the private sector go full speed ahead. If that is allowed to happen, we might make some headway.”

Jack Stopforth, chief executive of Liverpool Chamber of Commerce, points out that the government has been talking about rebalancing the economy away from its over-reliance on financial services in the south east towards manufacturing since it was elected to power in 2010.

“It has made a conscious effort to restrengthen the north, given the south is decline. If we don’t see a return to the halcyon days for the City, you have to look elsewhere for your growth and that means the north of England,” he said.

“We don’t have proper infrastructure. We need more transport investment in the north.

“It is absurd that it takes three hours to drive to Newcastle.

“The OECD’s analysis is essentially true. London and the South East is one of the most prosperous regions in the world. But the fine grain in this is important. Every city has its pockets of deprivation.

“But the same is true of parts of London and Southampton etc – the generalisation prosperous south and poor north is rubbish. Some parts of Kent suffer very serious unemployment.

“And we must continue to tackle poor health and deprivation. There is 11-year gap in life expectancy within the Wirral and Liverpool. But the same is true of the difference between Hampstead and Hackney.

“There needs to be a northern lobby that says we must do all we can to close the gap.

“In absolute terms, Liverpool has come on leaps and bounds, though in relative terms, the gap is still very pronounced.

“We are improving and making an improving contribution to the North West and the whole of the UK.

“There are real areas of excellence, such as Daresbury and Trafford Park.

“This is a damn sight better place as a business community centre than it was 10 years ago, regardless of whatever an academic comes along and says.”

The problem is made worse because the north of England is far more dependant on public sector jobs for employment than the south. So, as well as slow general growth, the north suffers from the additional problem of public sector spending cuts.

Professor Tom Cannon, head of strategic development at the University of Liverpool’s management school, said: “There are two nodes of growth in the north. The first starts west of Leeds and goes over to Hebden Bridge and goes a little bit down the motorway and comes to an end well before Sheffield.

“The second starts in Stockport and moves through Trafford and Warrington and also includes Manchester Airport and Chester.

“We have four or five elements that we can use. The first is new firm formation. We have to have an entrepreneurial revolution in the north of England.

“In historic terms its not long since northern Britain was the most exciting part of the world.

“The second element is around what we would call the knowledge economy. One of the strengths in the north are universities and the links into the health service. We have very good research hospitals, including the Christie in Manchester and the Royal in Liverpool.

“There has to be a major commitment to transfer technology out of universities.

“The entrepreneurial revolution has to be linked to universities and we need to retain our young people. Every northern city has a net loss of graduates. They all end up in London.

“We have to be much quicker at getting into the big infrastructure contracts. We have done abysmally on the Olympics.

“Part of that is going to be a revival of manufacturing. When the Chinese were here earlier this year, we did £1bn of business. They went to Germany and did £10bn.

“We have great links here to Asia and China and Shanghai. It’s not just Liverpool, it’s Manchester, Leeds and Glasgow as well. We have to be more international.

“That’s one of the reasons the south is doing well and our failure to exploit our links is a big problem.

“The fourth element is the service sector, things like tourism. The cruise liner terminal is so important to Liverpool – tourism is still the fastest growing industry in the world.

“We have lots of assets, for example, The Beatles, liners, golf and football.

“We also need a massive uplift in skills and education attainment.”