Widening the north-south divide

One of the most striking changes in Britain over the last half-century has been the ever greater tilt in economic activity towards London and the south-east. Attempts to counter it through regional aid, regional development agencies and now the so-called ‘northern powerhouse‘ have failed to stem the tide.

On the contrary, the trend has accelerated. An article from the Economist in 2012 summarises the key economic differences — including not only stark differences in wealth and productivity, but also in government investment, where northern local authorities bore the brunt of brutal spending cuts:

The Institute for Fiscal Studies, a think-tank, estimates that local authorities in the North East and North West must cut their spending by around 12%, compared with just 4.6% in the South East. IPPR, another think-tank, estimates that 86% of the government’s spending on big transport projects is in London. The big infrastructure debate at the moment is over whether it would be better to expand London’s Heathrow airport or build an entirely new airport in the south-east.

It affects everything. Prosperity levels. Health outcomes. Unemployment levels. Location of art and culture. Even in football, just look at number of northern teams which used to play in the top flight of English football but no longer do.

In part, the rise of London is a result of a highly centralised country where ministries, agencies and companies pay out in the south-east the salaries financed by taxes and contributions that were collected across the whole country. This siphoning-off to the capital can also be seen in France, another centralised country — but not so much in Germany, where the decentralised federal Länder attenuate this effect. In the UK, a greater degree of decentralisation would help — even simply by locating centralised organisations outside of London, as with the BBC’s move to Salford.

But the biggest factor of the bias towards London is the dominance of the financial sector over the manufacturing sector. Their interests do not always coincide. As the City has become more powerful, its grip over economic policy making has intensified.

Take the current exchange rate of the pound. It helps the City to have an over-valued pound, but manufacturers suffer as their exports dwindle and at home they face competition from artificially cheaper imports. It’s reached the point where the UK has a very large balance-of-payments deficit, but still the pound is kept high in the bankers’ interest. The high pound also creates a “pull factor” for economic migration, far more than some of the other factors Cameron frets about.

But that’s just an example. Time and time again, policy decisions made in London look after City interests, but neglect manufacturing interests.

Another blow to the north would come if we were to exit the European Union. Brexit campaigners openly argue that Britain should become a European Singapore — an offshore service economy, turning its back on Europe and going global. Never mind our manufacturing: services, they say, are the future.

Tell that to the Yorkshire engineering companies. Tell it to the workers at Nissan, most of whose cars are exported to the rest of Europe. Outside the EU we would face tariff barriers on our manufacturing exports to Europe. It could be the death knell of our industrial base — much of which is in the north. But the hedge funds don’t care.

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