The three steps to wisdom

By John Healey | 03 February 2015
  • John Healey

So government minister Greg Clark has declared that the North-South divide ‘is history’, according to the front page of The MJ (22 Jan). Even from a politician in election year, this takes some brass-neck.

Mr Clark was responding to the Centre for Cities’ latest Cities Outlook which revealed a widening gap between urban areas in the North and the South on every metric – from population growth and business formation to job creation and house building.

As the Centre for Cities report shows this problem wasn’t created in 2010. Nor will it vanish in 2015 – even with a change of government. But it is seriously wrong-headed to ignore the radical differences which hamper development and constrain opportunity across the country.

Mr Clark and his fellow inequality ignorers require remedial tuition. I’ve drawn up a three-step programme for them.

First step: understand the extent of the problem. The economy may be growing again, and edged past its pre-recession peak according to national headline GDP but this hides major variations between areas. Once you adjust for population change and inflation the latest regional GVA figures reveal that since 2010 output has actually shrunk in many areas, including Yorkshire, the North West and the East of England.

Most striking, recent analysis I’ve completed shows that regional inequality as measured by the internationally recognised Gini coefficient is now the highest since records began in 1997. The income of the richest region (London) is over ten times that of the poorest (Northern Ireland), with the gap having grown every year since 2010.

Second step: recognise that inequalities between areas are more often self-reinforcing than self-correcting. There’s a certain attitude towards regional inequality that says it’s something the market will fix. If any area is worse off in some respect, the argument goes, it will often have a comparative advantage with other areas on that basis. Lower wages will attract employers, more undeveloped land will attract investment. But this convenient fantasy has been exposed by years of regional differences getting bigger, not smaller.

The facts show that the opposite is more often true. Areas with already good infrastructure and services attract people and investment, economies of agglomeration mean it makes sense for firms to group together, and globalisation means that those areas well placed to compete in international markets do well while others risk stagnation or decline.

Third step: resolve that change can and must happen. Sometimes those who accept steps one and two fall into pessimism. A 2010 government paper on Understanding local growth lamented that ‘much of the increase in economic disparities seems long-term and linked to globalisation’. In 2008, the think-tank Policy Exchange went a step further and recommended that northern cities such as Bradford and Sunderland were ‘beyond revival’ and people who lived there should leave and head south.

This fatalistic attitude is feeble, and wrong. After 2000, regional inequality fell every year save one, until immediately before the global financial crisis when it started to tick upwards again. GVA per head growth from 1999-2009, though still more robust in some regions than others, was much more equal than the decade that preceded it. Job creation was rapid in all regions, with the employment rate in areas such as Scotland, Wales, the North East, and Yorkshire and the Humber all improving faster than the country-wide average.

Politics makes a difference. One factor was the now-abolished Regional Development Agencies which were set up in 1998 and found to have created or safeguarded over 200,000 jobs and increased regional GVA by £4.50 for every £1 they spent.

However, the new Parliament will demand solutions to the old problem of uneven economic development. And the first moves can be made in the post-election budget and spending review. Better understanding and debate is essential, so we must establish better information and accountability. First, by adopting an official regional inequality index to measure the gap in wealth and opportunity between different parts of the UK. Second, by building a regional impact assessment of policy into the budget process, just as we do for income now.

Next, we must radically reform Local Enterprise Partnerships (LEPs) in England. The LEPs are here to stay – the last thing local government and local businesses need is more structural upheaval – so they have to be at the heart of efforts to tackle economic inequalities between areas.

We need to reform the purpose and accountability of the LEPs so that there is clarity about what they are for, who they report to and how their success is measured. Where the geography of LEPs covers too small an area or doesn’t properly reflect local economic boundaries we need to change them. And where LEPS lack still lack capacity, funding, independence and certainty we need genuine single pot funding over which they can make independent decisions.

So these are my three steps to wisdom for Greg Clark, and for the next government. Recognise that regional inequalities are real, accept that they won’t go away by themselves, and settle on a realistic plan that matches up to the radical nature of the challenge.

The history books won’t record the demise of regional inequality just yet, but they will judge harshly politicians who do nothing about it.

John Healey is former Labour housing minister

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Local economies Infrastructure Economic growth Local Enterprise Partnerships Devolution Spending Review
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